Main.doinvokera StakeAssi ocator: assignment-take&ing; Tulsa Commun...-M eBook S

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Main.doinvokera StakeAssi ocator: assignment-take&ing; Tulsa Commun...-M eBook Show Me How la calculator Profitability Ratios The following selected data were taken from the financial statements of Vidahill Inc. for December 31, 20Y7, 20Y6, and 20Y5: December 31 20Y7 20Y6 20YS Total assets Notes payable (8% interest) Common stock Preferred 7% stock, $100 par $265,000 90,000 36,000 18,000 $239,000 90,000 36,000 18,000 $213,000 90,000 36,000 18,000 (no change during year) Retained earnings The 20Y7 net income was $31,320, and the 20Y6 net income was $20,380. No dividends on common stock were declared betwe a. Determine the return on total assets, the rate earned on stockholders' equity, and the return on common stockholders' equity 103,180 73,120 54,000 20Y6 Return on total assets Return on stockholders' equity Return on common stockholders equity b. The profitability ratios indicate that Vidahill Inc.'s profitability has improved .Since the rate of return on assets is less Check My Work Divide the sum of net income plus interest expense by average total assets, Average total assets-(Beginning total assets Divide net income by average total stockholders'equity. Average total stockholders'equity -(Beginning total stockholders'e Divide net income minus preferred dividends by average common stockholders'equity. Common stockholders'equity- Con Ending common stockholders'equity) + 2. b. Consider what the ratios tell you about the company's performance.

Explanation / Answer

a.

Annual interest expense = $ 90,000 x 8% = $ 7,200.

b. The profitability has improved.

20Y7 20Y6 Return on Total Assets 15.29 % 12.20 % Return on Stockholders' Equity 27.10 % 23.46 % Return on Common Stockholders Equity 31.03 % 27.70 %

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