Profitability Ratios The following selected data were taken from the financial statements of Vidahill Inc. for December 31, 20Y7, 20Y6, and 20Y5: December 31 20Υ7 20Y6 20Y5 Total assets $5,200,000 $5,000,000 $4,800,000 Notes payable (6% interest) 2,500,000 2,500,000 2,500,000 Common stock 250,000 250,000 250,000 Preferred 2.5% stock, $100 par (no change during year) 500,000 500,000 500,000 Retained earnings 1,574,000 1,222,000 750,000 The 20Y7 net income was $411,000, and the 20Y6 net income was $462,500. 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.

FINANCIAL ACCOUNTING
10th Edition
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Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
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Profitability Ratios
The following selected data were taken from the financial statements of Vidahill Inc. for December 31, 20Y7, 20Y6, and 20Y5:
December 31
20Υ7
20Y6
20Y5
Total assets
$5,200,000
$5,000,000
$4,800,000
Notes payable (6% interest)
2,500,000
2,500,000
2,500,000
Common stock
250,000
250,000
250,000
Preferred 2.5% stock, $100 par
(no change during year)
500,000
500,000
500,000
Retained earnings
1,574,000
1,222,000
750,000
The 20Y7 net income was $411,000, and the 20Y6 net income was $462,500. 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.
20Υ7
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
Because the return on common stockholders' equity
the return on total assets in both years, there is
leverage from the use of debt.
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 20Υ7 20Y6 20Y5 Total assets $5,200,000 $5,000,000 $4,800,000 Notes payable (6% interest) 2,500,000 2,500,000 2,500,000 Common stock 250,000 250,000 250,000 Preferred 2.5% stock, $100 par (no change during year) 500,000 500,000 500,000 Retained earnings 1,574,000 1,222,000 750,000 The 20Y7 net income was $411,000, and the 20Y6 net income was $462,500. 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. 20Υ7 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 Because the return on common stockholders' equity the return on total assets in both years, there is leverage from the use of debt.
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