Logo
Home Study Material Contact Search
AI Chat FREE
  1. business
  2. accounting
  3. profitability ratios the following selected data w

Profitability Ratios The following selected data were taken from the financial statements of Vidahill Inc. for December...

Free

80.2K

Verified Solution

Question

Accounting

Profitability Ratios

The following selected data were taken from the financialstatements of Vidahill Inc. for December 31, 20Y7, 20Y6, and20Y5:

December 31
20Y720Y620Y5
Total assets$172,000$155,000$138,000
Notes payable (8% interest)60,00060,00060,000
Common stock24,00024,00024,000
Preferred 7% stock, $100 par12,00012,00012,000
(no change during year)
Retained earnings73,72551,13536,000

The 20Y7 net income was $23,430, and the 20Y6 net income was$15,975. No dividends on common stock were declared between 20Y5and 20Y7. Preferred dividends were declared and paid in full in20Y6 and 20Y7.

a. Determine the return on total assets, thereturn on stockholders' equity, and the return on commonstockholders’ equity for the years 20Y6 and 20Y7. Round percentagesto one decimal place.

20Y720Y6
Return on total assets%%
Return on stockholders’ equity%%
Return on common stockholders’ equity%%

b. The profitability ratios indicate that thecompany's profitability has  . Since the rate of returnon total assets is  the return on stockholders' equity inboth years, there must be   leverage from the use ofdebt.

Answer & Explanation Solved by verified expert
3.9 Ratings (416 Votes)

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%

Get Answers to Unlimited Questions

Join us to gain access to millions of questions and expert answers. Enjoy exclusive benefits tailored just for you!

Membership Benefits:
  • Unlimited Question Access with detailed Answers
  • Zin AI - 3 Million Words
  • 10 Dall-E 3 Images
  • 20 Plot Generations
  • Conversation with Dialogue Memory
  • No Ads, Ever!
  • Access to Our Best AI Platform: Zin AI - Your personal assistant for all your inquiries!
Become a Member

Other questions asked by students

Q

Hypothesis 1: Mercury in thimerosal caused neurological damage in children, and is at least partly responsible...

Biology
Q

Which version of the windows was released in the yea 2009

Biology
Q

Question Completion Status QUESTION 12 Please write the co ordinates of the point indiacted below...

Geometry
Q

O Bivariate and Quantitative O Bivariate and Categorical Univariate and Quantitative O Univariate and Categorical...

Basic Math
Q

Managers of a sports arena s parking garage keep track of the duration of time...

Statistics
Q

Warner Company purchases $50,000 of raw materials on account, and...

Accounting
Q

X Ltd uses the LCNRV method, on an individual-item basis, in pricing its inventory items....

Accounting
Q

show work pls! HomeLife Life Insurance Company has two...

Accounting
Q

The priority for payment of dividend for preferred shares or common shares is based on...

Accounting
Q

Marcelino Co.'s March 31 inventory of raw materials is $86,000. Raw materials purchases in April...

Accounting
Q

Fanning Bunk's startup division establishes new branch banks, Each branch opens with three tellers. Total...

Accounting
Q

Preston Manufacturing produces self-watering planters for use in upscale retail establishments. Sales projections for the...

Accounting