Question

Solvency and Profitability Trend Analysis

Addai Company has provided the following comparative information:

	20Y8		20Y7		20Y6		20Y5		20Y4
Net income	$1,359,400		$1,171,900		$984,800		$841,700		$713,300
Interest expense	462,200		421,900		364,400		277,800		221,100
Income tax expense	435,008		328,132		275,744		218,842		171,192
Total assets (ending balance)	8,599,073		9,086,363		6,539,127		6,819,289		5,171,294
Total stockholders' equity (ending balance)	2,724,567		3,303,815		2,109,119		2,636,905		1,582,143
Average total assets	8,842,718		7,812,745		6,679,208		5,682,741		4,841,451
Average stockholders' equity	3,014,191		2,706,467		2,373,012		2,109,524		1,852,727

You have been asked to evaluate the historical performance of the company over the last five years.

Selected industry ratios have remained relatively steady at the following levels for the last five years:

	20Y4―20Y8
Return on total assets	20.3%
Return on stockholders’ equity	41.9%
Times interest earned	4.6
Ratio of liabilities to stockholders' equity	2.1

Required:

1. Determine the following for the years 20Y4 through 20Y8. Round to one decimal place:

a. Return on total assets:

20Y8	%
20Y7	%
20Y6	%
20Y5	%
20Y4	%

b. Return on stockholders’ equity:

20Y8	%
20Y7	%
20Y6	%
20Y5	%
20Y4	%

c. Times interest earned:

20Y8
20Y7
20Y6
20Y5
20Y4

d. Ratio of liabilities to stockholders' equity:

20Y8
20Y7
20Y6
20Y5
20Y4

Answer 1

Answer is given below with workings