Analyzing Stockholders’ Equity Mercy Company and Nulty Corporation have equal amounts of preferred stock outstanding and each pays a preferred dividend of $20,000 annually. Using data from the most recent annual reports, the following ratios were calculated:

a. Should an investor look for a company with a high or low times preferred dividends earned ratio? Explain.

b. Should an investor look for a return on owners’ equity that is greater than or less than the return on total assets? Explain.

c. Should an investor look for a return on common equity that is greater than or less than the return on owners’ equity? Explain.

d. Based on the information presented above, would you expect Mercy Company or Nulty Corporation to be the more desirable investment for someone wishing to invest in common stock? Explain.

e. If Mercy Corporation reported net income of $80,000 and Nulty Corporation reported net income of $60,000, how is it possible for Nulty Corporation to have a greater return on total assets?

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Mercy Nulty Company Corporation Times preferred dividends earned 4.00 3.00 Return on total assets 10.0% 15.0% Return on owners' equity 13.3% 20.0% Return on common equity 15.0% 40.0%