Addai Company has provided the following comparative information:

You have been asked to evaluate the historical performance of the company over the last five years.
Selected industry ratios have remained relatively steady at the following levels for the last five years:
20Y4-20Y8
Return on total assets......................................28%
Return on stockholders' equity...........................18%
Times interest earned.......................................2.7
Ratio of liabilities to stockholders' equity...............0.4
Instructions
1. Prepare four line graphs with the ratio on the vertical axis and the years on the horizontal axis for the following four ratios, rounding to one decimal place:
a. Return on total assets
b. Return on stockholders' equity
c. Times interest earned
d. Ratio of liabilities to stockholders' equity
Display both the company ratio and the industry benchmark on each graph. That is, each graph should have two lines.
2. Prepare an analysis of the graphs in (1).

Transcribed Image Text:

20Y8 20Y6 20Y5 20Y4 Net income 273,406 367,976 631,176 884,000 800,000 440,000 Interest expense 616,047 572,003 528,165 495,000 53,560 106,720 160,000 Income tax expense Total assets (ending balance) Total stockholders' equity 200,000 4,417,178 4,124,350 3,732,443 3,338,500 2,750,000 31,749 (ending balance) 3,706,557 3,433,152 3,065,176 2,434,000 1,550,000 4,270,764 3,928,396 3,535,472 3,044,250 2,475,000 Average total stockholders equity 3,569,855 3,249,164 2,749,588 1,992,000 1,50,000 Average total assets