Profitability Ratios The following selected data were taken from the financial statements of Vidahill Inc....
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Accounting
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
$216,000
$195,000
$174,000
Notes payable (8% interest)
70,000
70,000
70,000
Common stock
28,000
28,000
28,000
Preferred 5% stock, $100 par
14,000
14,000
14,000
(no change during year)
Retained earnings
85,310
60,130
42,000
The 20Y7 net income was $25,880, and the 20Y6 net income was $18,830. 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
%
%
Return on stockholders equity
%
%
Return on common stockholders equity
%
%
b. The profitability ratios indicate that the company's profitability has . Since the rate of return on assets is the return on stockholders' equity in both years, there must be leverage from the use of debt.
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