The following selected data were taken from the financial statements of Vidahill Inc. for December 31, 20Y7, 2016, and 20Y5: December 31 December 31 December 31 20Y7 20Y6 2015 Total assets $270,000 $243,000 $216,000 Notes payable (8% interest) 90,000 90,000 90,000 Common stock 36,000 36,000 36,000 Preferred 4% stock, $100 par (no change during year) 18,000 Retained earnings 90,585 18,000 69,525 18,000 54,000 The 2017 net income was $21,780, and the 20Y6 net income was $16,245. No dividends on common stock were declared between 2015 and 20Y7. 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 2016 and 2017. When required, round your answers to one decimal place. 2017 20Y6 Return on total assets 8.1 X % 6.7 X % Return on stockholders' equity 15.1 X % Return on common stockholders' equity 17.0 X % 13.1 X % 14.7 X % b. The profitability ratios indicate that the company's profitability has improved . Since the return on assets is less than the return on stockholders' equity in both years, there must be positive leverage from the use of debt.
The following selected data were taken from the financial statements of Vidahill Inc. for December 31, 20Y7, 2016, and 20Y5: December 31 December 31 December 31 20Y7 20Y6 2015 Total assets $270,000 $243,000 $216,000 Notes payable (8% interest) 90,000 90,000 90,000 Common stock 36,000 36,000 36,000 Preferred 4% stock, $100 par (no change during year) 18,000 Retained earnings 90,585 18,000 69,525 18,000 54,000 The 2017 net income was $21,780, and the 20Y6 net income was $16,245. No dividends on common stock were declared between 2015 and 20Y7. 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 2016 and 2017. When required, round your answers to one decimal place. 2017 20Y6 Return on total assets 8.1 X % 6.7 X % Return on stockholders' equity 15.1 X % Return on common stockholders' equity 17.0 X % 13.1 X % 14.7 X % b. The profitability ratios indicate that the company's profitability has improved . Since the return on assets is less than the return on stockholders' equity in both years, there must be positive leverage from the use of debt.
Survey of Accounting (Accounting I)
8th Edition
ISBN:9781305961883
Author:Carl Warren
Publisher:Carl Warren
Chapter9: Metric-analysis Of Financial Statements
Section: Chapter Questions
Problem 9.17E: Profitability metrics The following selected data were taken from the financial statements of The...
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