Chapter 14, Problem 5CP

Summary Introduction

(a)

To Determine:

The Ludlow's analysis should be criticized by calculating and analyzing the five components that determine ROE and the two ratios that determine sustainable growth.

Introduction:

In any financial statements, the return on common shareholder's equity ratio is taken by subtraction of preferred dividend from Net income which is then divided by average common stockholder's equity.

We have the formula for the return on common shareholder's equity ratio as below:

  $\text{ROE =}\frac{\text{Net Income-preferred dividends}}{Average\text{ common equity}}$

Summary Introduction

(b)

To Determine:

To explain about how QuickBrush has produced an average annual earnings per share growth rate of 40%.

Introduction:

In any financial statements, the earnings per share is calculated through below mentioned formula:

  $\text{Earning Pe share=}\frac{\text{Net Income-preferred dividends}}{WeightedAverage\text{ common share outstanding}}$