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Profitability Ratios The following selected data were taken from the financial statements of Vidahill Inc. for...
Profitability Ratios
The following selected data were taken from the financial statements of Vidahill Inc. for December 31, 20Y7, 20Y6, and 20Y5:
December 31
20Y720Y620Y5
Total assets$221,000 $199,000 $177,000
Notes payable (8% interest)70,000 70,000 70,000
Common stock28,000 28,000 28,000
Preferred 5% stock, $100 par14,000 14,000 14,000
(no change during year)
Retained earnings70,600 53,100 42,000
The 20Y7 net income was $18,200, and the 20Y6 net income was $11,800. No dividends on common stock were declared between 20Y5 and 20Y7. Preferred dividends were declared and paid in full in 20Y6 and 20Y7.
a. Determine the return on total assets, the return on stockholders' equity, and the return on common stockholders’ equity for the years 20Y6 and 20Y7. When required, round to one decimal place.
20Y720Y6
Return on total assets%%
Return on stockholders’ equity%%
Return on common stockholders’ equity%%
b. The profitability ratios indicate that the company's profitability has improved . Since the return on assets is less than the return on stockholders' equity in both years, there must be positive leverage from the use of debt.
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a. Divide the sum of net income plus interest expense by average total assets. Average total assets = (Beginning total assets + Ending total assets) ÷ 2.
Divide net income by average total stockholders'equity. Average total stockholders'equity = (Beginning total stockholders'equity + Ending total stockholders'equity) ÷ 2.
Divide net income minus preferred dividends by average common stockholders'equity. Common stockholders'equity = Common stock + Retained earnings. Average common stockholders'equity = (Beginning common stockholders'equity + Ending common stockholders'equity) ÷ 2.
b. Consider what the ratios tell you about the company's performance.
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Expert Solution
| A | 20Y7 | 20Y6 | 20Y5 | |||||||||
| Total Assets | 221,000 | 199,000 | 177,000 | |||||||||
| Note Payable(8 % interest) | 70,000 | 70,000 | 70,000 | |||||||||
| Common Stock | 28,000 | 28,000 | 28,000 | |||||||||
| Preferred 5 % Stock | 14,000 | 14,000 | 14,000 | |||||||||
| Retained Earnings | 70,600 | 53,100 | 42,000 | |||||||||
| Stock Holder equity | 112,600 | 95,100 | 84,000 | |||||||||
| Common stock holder Equity | 98,600 | 81,100 | 70,000 | |||||||||
| Return on Total Asset | ||||||||||||
| 20Y7 | 20Y6 | |||||||||||
| Net Income | 18,200 | 11,800 | ||||||||||
| Add: Interest | 5,600 | 5,600 | ||||||||||
| 23,800 | 17,400 | |||||||||||
| Average Total Assets | 210,000 | 188,000 | ||||||||||
| Return on Total Asset | 11% | 9% | ||||||||||
| Return on Stockholder equity | ||||||||||||
| 20Y7 | 20Y6 | |||||||||||
| Net Income | 18,200 | 11,800 | ||||||||||
| Average Total stock holder Equity | 103,850 | 89,550 | ||||||||||
| Return on Stockholder equity | 18% | 13% | ||||||||||
| Return on Common Stock Holder equity | ||||||||||||
| 20Y7 | 20Y6 | |||||||||||
| Net Income | 18,200 | 11,800 | ||||||||||
| Preference Dividend | 700 | 700 | ||||||||||
| Net Income-Preference Dividend | 17,500 | 11,100 | ||||||||||
| Average Common stock holder Equity | 89,850 | 75,550 |
 ekkarill92 answered 2 years agoRelated SolutionsProfitability Ratios The following selected data were taken from the financial statements of Vidahill Inc. for...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
20Y5
Total assets
$320,000
$288,000
$256,000
Notes payable (8% interest)
110,000
110,000
110,000
Common stock
44,000
44,000
44,000
Preferred 6% stock, $100 par
22,000
22,000
22,000
(no change during year)
Retained earnings
117,200
80,880
66,000
The 20Y7 net income was $37,640, and the 20Y6 net income was
$16,200. No dividends on common stock were...
Profitability Ratios The following selected data were taken from the financial statements of Vidahill Inc. for...Profitability Ratios
The following selected data were taken from the financial
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20Y5:
December 31
20Y7
20Y6
20Y5
Total assets
$255,000
$230,000
$205,000
Notes payable (8% interest)
90,000
90,000
90,000
Common stock
36,000
36,000
36,000
Preferred 5% stock, $100 par
18,000
18,000
18,000
(no change during year)
Retained earnings
94,500
68,025
54,000
The 20Y7 net income was $27,375, and the 20Y6 net income was
$14,925. No dividends on common stock were...
Profitability Ratios The following selected data were taken from the financial statements of Vidahill Inc. for...Profitability Ratios
The following selected data were taken from the financial
statements of Vidahill Inc. for December 31, 20Y7, 20Y6, and
20Y5:
December 31
20Y720Y620Y5
Total assets$221,000 $199,000 $177,000
Notes payable (8% interest)70,000 70,000 70,000
Common stock28,000 28,000 28,000
Preferred 5% stock, $100 par14,000 14,000 14,000
(no change during year)
Retained earnings70,600 53,100 42,000
The 20Y7 net income was $18,200, and the 20Y6 net income was
$11,800. No dividends on common stock were declared between 20Y5
and 20Y7. Preferred dividends...
Profitability Ratios The following selected data were taken from the financial statements of Vidahill Inc. for...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
20Y5
Total assets
$254,000
$229,000
$204,000
Notes payable (8% interest)
80,000
80,000
80,000
Common stock
32,000
32,000
32,000
Preferred 5% stock, $100 par
16,000
16,000
16,000
(no change during year)
Retained earnings
88,275
60,850
48,000
The 20Y7 net income was $28,225, and the 20Y6 net income was
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statements of Vidahill Inc. for December 31, 20Y7, 20Y6, and
20Y5:
December 31
20Y7
20Y6
20Y5
Total assets
$172,000
$155,000
$138,000
Notes payable (8% interest)
60,000
60,000
60,000
Common stock
24,000
24,000
24,000
Preferred 7% stock, $100 par
12,000
12,000
12,000
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Retained earnings
73,725
51,135
36,000
The 20Y7 net income was $23,430, and the 20Y6 net income was
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20Y5:
December 31
20Y7
20Y6
20Y5
Total assets
$220,000
$198,000
$176,000
Notes payable (8% interest)
70,000
70,000
70,000
Common stock
28,000
28,000
28,000
Preferred 3% stock, $100 par
14,000
14,000
14,000
(no change during year)
Retained earnings
79,080
55,150
42,000
The 20Y7 net income was $24,350, and the 20Y6 net income was
$13,570. No dividends on common stock...
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20Y5:
December 31
20Y7
20Y6
20Y5
Total assets
$268,000
$241,000
$214,000
Notes payable (8% interest)
90,000
90,000
90,000
Common stock
36,000
36,000
36,000
Preferred 3% stock, $100 par
18,000
18,000
18,000
(no change during year)
Retained earnings
100,665
69,485
54,000
The 20Y7 net income was $31,720, and the 20Y6 net income was
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December 31
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2015
2014
Total assets
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$265,000
$236,000
Notes payable (10% interest)
100,000
100,000
100,000
Common stock
40,000
40,000
40,000
Preferred 6% stock, $100 par
20,000
20,000
20,000
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Retained earnings
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73,850
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Sales revenue
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Cost of goods sold
363,000
Gross profit
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Selling and administrative expense
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Operating income
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Interest expense
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Income before tax
$136,000
Income tax expense (40%)
54,400
Net income
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Accounts payable
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Accrued liabilities
70,000
Income taxes payable
10,000
Interest payable
25,000
Short-term loans payable
150,000
Total current liabilities
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Long-term bonds payable
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