Evaluation of profitability: In general, financial ratios are used to evaluate capabilities, profitability, and overall performance of a company. The following are the ratios that evaluate the profitability of a company: Profit margin ratio Rate of return on total assets Asset turnover ratio Rate of return on common stockholders’ equity Earnings per share Dividend payout Return on stockholders’ equity Given info: Net income, preference dividends, average stockholders’ equity and average common stockholders’ equity.

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Chapter 14, Problem 10BE

(a)

To determine

Evaluation of profitability: In general, financial ratios are used to evaluate capabilities, profitability, and overall performance of a company. The following are the ratios that evaluate the profitability of a company:

Profit margin ratio

Rate of return on total assets

Asset turnover ratio

Rate of return on common stockholders’ equity

Earnings per share

Dividend payout

Return on stockholders’ equity

Given info: Net income, preference dividends, average stockholders’ equity and average common stockholders’ equity.

b.

To determine

Return on common stockholders’ equity

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