Valencia Company had the following income statements for 20X1 and 20X2:

Valencia Company generally paid dividends approximately equal to its net income. This resulted in the company’s stockholders’ equity totaling $1,480 at the end of both 20X0 and 20X1. However, at the end of 20X2 the company’s total stockholders’ equity was $2,080 primarily because of a large issuance of common stock in mid-20X2.

1. Compute Valencia Company’s gross margin percentage, the return on sales, and the return on stockholders’ equity for 20X1 and 20X2.

2. As a stockholder, would you have been pleased about the change in performance between 20X1 and 20X2? Explain why or why not.

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20X1 $1,500 920 580 210 370 148 20X2 S1,600 950 5 Sales Cost of goods sold Gross margin Operating expenses Operating income Income taxes Net income 426 166 S 260