Question

w Connolly - Outlo Course: BU-1152-05 Financial My Home CengageNOWV2 Online teachi.. Cengage Learning Dyese Hoodie eBook Show Me How Calculator Print Item Profitability Ratios The following selected data were taken from the financial statements of Vidahill Inc. for December 31, 2017, 2016, and 2015: December 31 2017 2016 2015 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 2017 net income was $411,000, and the 2016 net income was $462,500. No dividends on common stock were declared between 2015 and 2047. Preferred dividends were declared and paid in full in 2016 and 2017. a. Determine the return on total assets, the return on stockholders' equity, and the return on common stockholders' equity for the years 2076 and 2077. Round percentages to one decimal place. 2017 2016 Return on total assets 22 % Return on stockholders' equity % % Return on common stockholders' equity % b. The profitability ratios indicate that the company's profitability has deteriorated ✓ . Because the return on common stockholders' equity exceeds the return on total assets in both years, there is positive leverage from the use of debt. Feedback Check My Work Previous Next Check My Work

Answer 1

Return On Asset= Net Income / Average Asset

2017= 411000/((5200000+5000000)/2)=8.1%

2016= 462500/((5000000+4800000)/2)=9.4%

Retunr on Common Stockholder Equity= (Net Income- Preferred Dividend )_ / Average CommonS tockholder Equity

2017= (411000-(500000*2.5%))/1648000=24.2%

Average Common Stockholder Equity= ((250000+1574000+250000+1222000)/2)= $1648000

2016= (462500-(500000*2.5%))/1236000=36.4%

Average Common Stockholder Equity= ((250000+1222000+250000+750000)/2)= $1236000

Retunr on Stockholder Equity= Net Income_ / Average Stockholder Equity

2017= 411000/2148000=19.1%

Average Stockholder Equity= ((250000+1574000+500000+250000+1222000+500000)/2)= $2148000

2016= 462500/1736000=26.6%

Average Stockholder Equity= ((250000+1222000+500000+250000+750000+500000)/2)= $1736000