Question

Profitability Ratios

The following selected data were taken from the financial statements of Vidahill Inc. for December 31, 20Y7, 20Y6, and 20Y5:

		December 31
		20Y7		20Y6		20Y5
Total assets		$216,000		$195,000		$174,000
Notes payable (8% interest)		70,000		70,000		70,000
Common stock		28,000		28,000		28,000
Preferred 5% stock, $100 par		14,000		14,000		14,000
	(no change during year)
Retained earnings		85,310		60,130		42,000

The 20Y7 net income was $25,880, and the 20Y6 net income was $18,830. No dividends on common stock were declared between 20Y5 and 20Y7. Preferred dividends were declared and paid in full in 20Y6 and 20Y7.

a. Determine the return on total assets, the return on stockholders' equity, and the return on common stockholders’ equity for the years 20Y6 and 20Y7. Round percentages 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 the company's profitability has . Since the rate of return on assets is the return on stockholders' equity in both years, there must be leverage from the use of debt.

Answer 1

			(in $)	(in $)
	S.No	Particulars	2017	2016
	A	Net Income	25880	18830
	B	Preference Dividend	700	700
	C	Income Attributable to Common Stock	25180	18130
	D	Total Assets	216000	195000
	E	Return on Total Assets(A/D)	11.98%	9.66%
	F	Preferred Stock	14000	14000
	G	Retained Earnings	85310	60130
	H	Common Stock	28000	28000
	I	Stockholder's Equity(F+G+H)	127310	102130
	J	Return on Stockholder's Equity(A/I)	20.33%	18.44%
	K	Common Stock Holder's Equity(G+H)	113310	88130
	L	Return on Common Stock Holder's Equity(C/K)	22.22%	20.57%