2014 2013 A. Compute the return on common stockholders’ equity for both years. B

Question

2014

2013

A. Compute the return on common stockholders’ equity for both years.

B. Compute the debt to total assets ratio for both years.

Korsak Corporation decided to issue common stock and used the $415,300 proceeds to redeem all of its outstanding bonds on January 1, 2014. The following information is available for the company for 2013 and 2014.

2014

2013

Net income $ 196,500 $ 144,100 Dividends declared for preferred stockholders 7,800 9,600 Average common stockholders’ equity 1,242,900 712,100 Total assets 1,539,400 1,154,600 Current liabilities 237,700 234,600 Total liabilities 296,500 442,500

Explanation / Answer

A. return on stockholders equiity:

= net income - preference dividend / average common stock holders equity * 100

For the year 2013,

= 144100 - 9600 / 712100 * 100

= 134500 / 712100 * 100

= 18.89%

For 2014,

= 196500 - 7800 / 1242900 * 100

= 188700 / 1242900 * 100

= 15.18%

B. debt to total assets ratio:

= total liabilities / total assets

for the year 2013,

= 442500 / 1154600 = 0.38

for 2014,

= 296500 / 1539400 = 0.19

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