Question

In: Accounting

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 $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
(no change during year)
Retained earnings 73,725 51,135 36,000

The 20Y7 net income was $23,430, and the 20Y6 net income was $15,975. 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. Round percentages to one decimal place.

20Y7 20Y6
Return on total assets % %
Return on stockholders’ equity % %
Return on common stockholders’ equity % %

b. The profitability ratios indicate that the company's profitability has  . Since the rate of return on total assets is  the return on stockholders' equity in both years, there must be   leverage from the use of debt.

Solutions

Expert Solution

20y7 20y6
Return on total assets = EBIT/ Average Total Assets
EBIT = NI + Interest + Tax
Net Income $23,430.00 $15,975.00
Average Assets $1,63,500.00 $1,46,500.00
Interest = $60000 x 8% $4,800.00 $4,800.00
ROTA = NI + interest/ Average Total Assets 17.27% 14.18%
Return on stockholders’ equity = Net Income/ Av. shareholder equity
Net Income $23,430.00 $15,975.00
Shareholder Equity = Share Capital + Retained Earnings + preferred capital $1,09,725.00 $87,135.00
Average Shareholder equity $98,430.00 $79,567.50
Return on stockholders’ equity = Net Income/ Av. shareholder equity 23.80% 20.08%
Return on common stockholders’ equity = NI - Preferred Dividend/Av. common stock holders equity
Net Income $23,430.00 $15,975.00
Preferred Dividend (12,000 x 7%) $840.00 $840.00
Common stockholder equity = Common stock + Retained Earning $97,725.00 $75,135.00
Av. Common stockholder equity $86,430.00 $67,567.50
Return on common stockholders’ equity = NI - Preferred Dividend/Av. common stock holders equity 26.14% 22.40%

Related Solutions

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 $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 statements of Vidahill Inc. for December 31, 20Y7, 20Y6, and 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 $13,650. No dividends on common stock were...
9. Profitability Ratios The following selected data were taken from the financial statements of Vidahill Inc....
9. 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 $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...
The following selected data were taken from the financial statements of Vidahill Inc. for December 31,...
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 $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 $16,025. No dividends on common stock were declared between...
The following selected data were taken from the financial statements of Vidahill Inc. for December 31, 20Y7, 20Y6, and 20Y5:
Profitability RatiosThe following selected data were taken from the financial statements of Vidahill Inc. for December 31, 20Y7, 20Y6, and 20Y5:December 3120Y720Y620Y5Total assets$321,000$289,000$257,000Notes payable (8% interest)110,000110,000110,000Common stock44,00044,00044,000Preferred 7% stock, $100 par22,00022,00022,000(no change during year)Retained earnings113,65083,49066,000The 20Y7 net income was $31,700, and the 20Y6 net income was $19,030. 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'...
The following selected data were taken from the financial statements of Squiggle Group Inc. for December...
The following selected data were taken from the financial statements of Squiggle Group Inc. for December 31, 2016, 2015 and 2014: December 31 2016 2015 2014 Total assets $294,000 $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 (no change during year) Retained earnings 93,395 73,850 60,000 The 2016 net income was $20,745, and the 2015 net income was $15,050. No dividends on common stock were declared...
Return Ratios and Leverage The following selected data are taken from the financial statements of Redwood...
Return Ratios and Leverage The following selected data are taken from the financial statements of Redwood Enterprises: Sales revenue $649,000 Cost of goods sold 363,000 Gross profit $286,000 Selling and administrative expense 100,000 Operating income $186,000 Interest expense 50,000 Income before tax $136,000 Income tax expense (40%) 54,400 Net income $81,600 Accounts payable $45,000 Accrued liabilities 70,000 Income taxes payable 10,000 Interest payable 25,000 Short-term loans payable 150,000 Total current liabilities $300,000 Long-term bonds payable $500,000 Preferred stock, 10%, $100...
ADVERTISEMENT
ADVERTISEMENT
ADVERTISEMENT