Linda’s Clothing is a retailer of contemporary women’s clothing. Selected financ
ID: 2415414 • Letter: L
Question
Linda’s Clothing is a retailer of contemporary women’s clothing. Selected financial information for Linda’s appears below:
2011
2010
2009
2008
Net Income
$ 56,759
$ 31,150
$ 15,375
$14,750
Total Assets at year-end
$381,500
$246,250
$145,490
$71,268
Weighted Average number of shares
Outstanding
84,215
80,546
77,965
75,888
Total Liabilities at year-end
205,967
119,657
60,522
17,623
Common Stockholders' Equity at year-end
$175,533
$126,593
$ 84,968
$53,645
Interest Expense
165
195
258
368
Required:
a.
Compute the rate of return on assets for the years 2009-2011. Linda’s has an effective tax rate of 35%.
b.
Compute the rate of return on common shareholders’ equity for the years 2009-2011.
c.
Compute basic earnings per share for the years 2009-2011.
d.
Interpret the changes in ROA versus ROCE and EPS over the three-year period.
2011
2010
2009
2008
Net Income
$ 56,759
$ 31,150
$ 15,375
$14,750
Total Assets at year-end
$381,500
$246,250
$145,490
$71,268
Weighted Average number of shares
Outstanding
84,215
80,546
77,965
75,888
Total Liabilities at year-end
205,967
119,657
60,522
17,623
Common Stockholders' Equity at year-end
$175,533
$126,593
$ 84,968
$53,645
Interest Expense
165
195
258
368
Explanation / Answer
2011 2010 2009 2008 Net Income 56,759 31,150 15,375 $14,750 Total Assets at year-end $381,500 $246,250 $145,490 $71,268 Weighted Average number of shares Outstanding 84,215 80,546 77,965 75,888 Total Liabilities at year-end 205,967 119,657 60,522 17,623 Common Stockholders' Equity at year-end $175,533 $126,593 84,968 $53,645 Interest Expense 165 195 258 368 Net income 56759 31150 15375 14750 Less: Taxes@35% 19866 10903 5381 5163 EAT 36893 20248 9994 9588 Total Assets $381,500 $246,250 $145,490 $71,268 ROA = Earning after taxes / Total assets 9.67% 8.22% 6.87% 13.45% Net income 56759 31150 15375 14750 Less: Taxes@35% 19866 10903 5381 5163 EAT 36893 20248 9994 9588 Common Stockholders' Equity at year-end $175,533 $126,593 84,968 $53,645 Rate of return on common shareholders’ equity = EAT / Common stockholders' equity 21.02% 15.99% 11.76% 17.87% EPS = EAT / Total shares outstanding $ 0.44 $ 0.25 $ 0.13 $ 0.13 Changes in ROA 17.61% 19.70% -48.94% Changes in ROCE 31.41% 35.98% -34.19% Changes in EPS 74.27% 96.11% 1.46%
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