Profitability Ratios The following selected data were taken from the financial statements of Vidahill Inc. for December 31, 20Y7, 20Y6, and 20Y5: December 31 2017 20Y6 20Y5 Total assets $228,000 $205,000 $182,000 Notes payable (8% interest) 80,000 80,000 80,000 Common stock 32,000 32,000 32,000 Preferred 4% stock, $100 par 16,000 16,000 16,000 (no change during year) Retained earnings 89,040 58,710 48,000 The 2017 net income was $30,970, and the 20Y6 net income was $11,350. No dividends on common stock were declared between 2005 and 20Y7. Preferred dividends were declared and paid in full in 2006 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. Return on total assets Return on stockholders' equity Return on common stockholders' equity 20Y7 20Y6 17.2 X % 62 X % 12.7 X % 11.1 X % 28.6 % 12.5 % b. The profitability ratios indicate that the company's profitability has improved ✓. Since the rate of return on total assets is less than on stockholders' equity in both years, there must be positive leverage from the use of debt. ✓ the return
Profitability Ratios The following selected data were taken from the financial statements of Vidahill Inc. for December 31, 20Y7, 20Y6, and 20Y5: December 31 2017 20Y6 20Y5 Total assets $228,000 $205,000 $182,000 Notes payable (8% interest) 80,000 80,000 80,000 Common stock 32,000 32,000 32,000 Preferred 4% stock, $100 par 16,000 16,000 16,000 (no change during year) Retained earnings 89,040 58,710 48,000 The 2017 net income was $30,970, and the 20Y6 net income was $11,350. No dividends on common stock were declared between 2005 and 20Y7. Preferred dividends were declared and paid in full in 2006 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. Return on total assets Return on stockholders' equity Return on common stockholders' equity 20Y7 20Y6 17.2 X % 62 X % 12.7 X % 11.1 X % 28.6 % 12.5 % b. The profitability ratios indicate that the company's profitability has improved ✓. Since the rate of return on total assets is less than on stockholders' equity in both years, there must be positive leverage from the use of debt. ✓ the return
Managerial Accounting
15th Edition
ISBN:9781337912020
Author:Carl Warren, Ph.d. Cma William B. Tayler
Publisher:Carl Warren, Ph.d. Cma William B. Tayler
Chapter16: Financial Statement Analysis
Section: Chapter Questions
Problem 17E
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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
Total assets
Notes payable (8% interest)
Common stock
Preferred 4% stock, $100 par
(no change during year)
Retained earnings
20Y7
$228,000
80,000
32,000
16,000
Return on total assets
20Y6
$205,000
80,000
32,000
16,000
89,040
48,000
The 20Y7 net income was $30,970, and the 20Y6 net income was $11,350. No dividends on common stock were declared between 20Y5 and 20Y7. Preferred
dividends were declared and paid in full in 20Y6 and 20Y7.
58,710
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.
17.2 X %
20Y5
$182,000
80,000
32,000
16,000
12.7 X %
28.6✔ %
20Y6
Return on stockholders' equity
Return on common stockholders' equity
b. The profitability ratios indicate that the company's profitability has improved ✓. Since the rate of return on total assets is less than
on stockholders' equity in both years, there must be positive leverage from the use of debt.
62 X %
11.1 X %
12.5 ✔ %
the return](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F410593ef-ea74-4e0f-ba57-3e5540c04a72%2F7cebae02-e659-4bcd-82dd-ad84735a93ce%2Fyh64a8z_processed.jpeg&w=3840&q=75)
Transcribed Image Text:Profitability Ratios
The following selected data were taken from the financial statements of Vidahill Inc. for December 31, 20Y7, 20Y6, and 20Y5:
December 31
Total assets
Notes payable (8% interest)
Common stock
Preferred 4% stock, $100 par
(no change during year)
Retained earnings
20Y7
$228,000
80,000
32,000
16,000
Return on total assets
20Y6
$205,000
80,000
32,000
16,000
89,040
48,000
The 20Y7 net income was $30,970, and the 20Y6 net income was $11,350. No dividends on common stock were declared between 20Y5 and 20Y7. Preferred
dividends were declared and paid in full in 20Y6 and 20Y7.
58,710
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.
17.2 X %
20Y5
$182,000
80,000
32,000
16,000
12.7 X %
28.6✔ %
20Y6
Return on stockholders' equity
Return on common stockholders' equity
b. The profitability ratios indicate that the company's profitability has improved ✓. Since the rate of return on total assets is less than
on stockholders' equity in both years, there must be positive leverage from the use of debt.
62 X %
11.1 X %
12.5 ✔ %
the return
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