eBook Profitability Ratios The following selected data were taken from the finan

Question

eBook Profitability Ratios The following selected data were taken from the financial statements of Vidahill Inc. for December 31, 20Y7, 20 Show Me How Calculator Y6, and 20Ys: December 31 20Y7 20Y6 20YS Total assets $265,000 90,000 36,000 18,000 $239,000 Notes payable (8% interest) Common stock Preferred 6% stock, $100 par 90,000 36,000 18,000 $213,000 90,000 36,000 18,000 (no change during year) Retained earnings 96,500 68,780 54,000 The 20Y7 net income was $28,800, and the 20Y6 net income was $15,860. No dividends on common stock were declared between 20YS and 20Y7. Preferred dividends were declared and pald in full in 20Y6 and 20Y7. a. Determine the return 20Y on totat assets, the rate earned on stockholders' equity, and the return on common stockholders' equity for the years 6 and 20Y7. When required, round to one decimal place. 20Y7 20Y6 Return on total assets Return on stockholders' equity Return on common stockholders equity b·The profitability ratios indicate that Vidahill Inc.'s profitability has 06 Since the rate of return on assets is " 11/6/2017

Explanation / Answer

b. Increased

2017 2016 1 Return on assets = net income / Average total assets Net income 28800 15860 Beginning total assets 239000 213000 Ending total assets 265000 239000 Average total assets 252000 226000 Return on assets 11.4% 7.0% 2 Return on commonstockholders equity = net income / total stockholders equity Net income 28800 15860 Beginning shareholders equity 122780 108000 Ending shareholders equity 150500 122780 Average shareholders equity 136640 115390 Return on stockholders equity 21.1% 13.7% 3 Return on commonstockholders equity = net income / Common stockholders equity Net income 28800 15860 Preferred dividend 1080 1080 Net income after preferred dividend 27720 14780 Beginning common shareholders equity 36000 36000 Ending shareholders equity 36000 36000 Average shareholders equity 36000 36000 Return on common stockholders equity 77.0% 41.1%

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