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 $242,000 $218,000 $194,000 Notes payable (8% interest) 80,000 80,000 80,000 Common stock 32,000 32,000 32,000 Preferred 3% stock, $100 par 16,000 16,000 16,000 (no change during year) Retained earnings 90,020 66,300 48,000 The 20Y7 net income was $24,200, and the 20Y6 net income was $18,780. 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 fill in the blank 1 % fill in the blank 2 % Return on stockholders’ equity fill in the blank 3 % fill in the blank 4 % Return on common stockholders’ equity fill in the blank 5 % fill in the blank 6 % b. The profitability ratios indicate that the company's profitability has . Since the rate of return on total assets is the return on stockholders' equity in both years, there must be leverage from the use of debt

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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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
	20Y7	20Y6	20Y5
Total assets	$242,000		$218,000	$194,000
Notes payable (8% interest)	80,000		80,000	80,000
Common stock	32,000		32,000	32,000
Preferred 3% stock, $100 par	16,000		16,000	16,000
	(no change during year)
Retained earnings	90,020		66,300	48,000

The 20Y7 net income was $24,200, and the 20Y6 net income was $18,780. 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	fill in the blank 1	%	fill in the blank 2	%
Return on stockholders’ equity	fill in the blank 3	%	fill in the blank 4	%
Return on common stockholders’ equity	fill in the blank 5	%	fill in the blank 6	%

b. The profitability ratios indicate that the company's profitability has . Since the rate of return on total assets is the return on stockholders' equity in both years, there must be leverage from the use of debt.

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