Question

Exercise 13-11 Profitability analysis LO P3 Simon Company’s year-end balance sheets follow. At December 31 2015 2014 2013 Assets Cash $ 31,800 $ 35,625 $ 37,800 Accounts receivable, net 89,500 62,500 50,200 Merchandise Inventory 112,500 82,500 54,000 Prepaid expenses 10,700 9,375 5,000 Plant assets, net 278,500 255,000 230,500 Total assets $ 523,000 $ 445,000 $ 377,500 Liabilities and Equity Accounts payable $ 129,900 $ 75,250 $ 51,250 Long-term notes payable secured by mortgages on plant assets 98,500 101,500 83,500 Common stock, $10 par value 163,500 163,500 163,500 Retained earnings 131,100 104,750 79,250 Total liabilities and equity $ 523,000 $ 445,000 $ 377,500 The company’s income statements for the years ended December 31, 2015 and 2014, follow. For Year Ended December 31 2015 2014 Sales $ 673,500 $ 532,000 Cost of goods sold $ 411,225 $ 345,500 Other operating expenses 209,550 134,980 Interest expense 12,100 13,300 Income taxes 9,525 8,845 Total costs and expenses 642,400 502,625 Net Income $ 31,100 $ 29,375 Earnings per share $ 1.90 $ 1.80 Additional information about the company follows. Common stock market price, December 31, 2015 $30.00 Common stock market price, December 31, 2014 28.00 Annual cash dividends per share in 2015 0.29 Annual cash dividends per share in 2014 0.24 To help evaluate the company's profitability, compute the following ratios for 2015 and 2014: (1) Return on common stockholders' equity.

Answer 1

Return On Common Stockholders’ Equity
	Choose Numerator:			/	Choose Denominator:	=	Return On Common Stockholders’ Equity
	Net income	–	Preferred dividends	/	Average common stockholders’ equity	=	Return on common stockholders’ equity
2015	31100	–	0	/	281425	=	11.1%
2014	29375	–	0	/	255500	=	11.5%
Workings:
	2015	2014	2013
Common stock	163500	163500	163500
Retained earnings	131100	104750	79250
Total Stockholders' Equity	294600	268250	242750
Average Stockholders' Equity:
2015	281425	=(294600+268250)/2
2014	255500	=(268250+242750)/2