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Profitability Ratios The following selected data were taken from the financial statements of Vidahill Inc. for...

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.

Homework Answers

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%
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