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Linda’s Clothing is a retailer of contemporary women’s clothing. Selected financ

ID: 2492935 • 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 rate of retun on totala assets 56759*(1-0.35)/381500 31150*(1-0.35)/246250 15375*(1-0.35)/145490 14750*(1-0.35)/71268 9.675 8.22% 6.87% 13.45% Rate of return on common stock 56759*(1-0.35)/175533 31150*(1-0.35)/126593 15375*(1-0.35)/84968 14750*(1-0.35)/53645 21.02% 15.99% 11.76% 17.87% Basic EPS 0.438 0.251 0.128 0.126

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