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Solvency and Profitability Trend Analysis

Addai Company has provided the following comparative information:

	20Y8		20Y7		20Y6		20Y5		20Y4
Net income	$1,145,200		$987,200		$829,600		$709,100		$600,900
Interest expense	389,400		355,400		307,000		234,000		186,300
Income tax expense	366,464		276,416		232,288		184,366		144,216
Total assets (ending balance)	6,980,194		7,361,862		5,304,176		5,520,586		4,186,444
Total stockholders' equity (ending balance)	2,212,024		2,671,558		1,706,270		2,125,600		1,275,360
Average total assets	7,171,028		6,333,019		5,412,381		4,600,488		3,916,418
Average stockholders' equity	2,441,791		2,188,914		1,915,935		1,700,480		1,491,067

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:

	20Y420Y8
Return on total assets	21.1%
Return on stockholders equity	43.7%
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	fill in the blank 1%
20Y7	fill in the blank 2%
20Y6	fill in the blank 3%
20Y5	fill in the blank 4%
20Y4	fill in the blank 5%

b. Return on stockholders equity:

20Y8	fill in the blank 6%
20Y7	fill in the blank 7%
20Y6	fill in the blank 8%
20Y5	fill in the blank 9%
20Y4	fill in the blank 10%

c. Times interest earned:

20Y8	fill in the blank 11
20Y7	fill in the blank 12
20Y6	fill in the blank 13
20Y5	fill in the blank 14
20Y4	fill in the blank 15

d. Ratio of liabilities to stockholders' equity:

20Y8	fill in the blank 16
20Y7	fill in the blank 17
20Y6	fill in the blank 18
20Y5	fill in the blank 19
20Y4	fill in the blank 20

2. Refer to the selected industry ratios provided above.

Both the rate earned on total assets and the rate earned on stockholders' equity have been moving in a

positivenegative

direction in the last five years. Both measures have moved

abovebelow

the industry average over the last two years. The cause of this change is driven by a rapid

increasedecrease

in earnings.

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