Solvency and profitability trend analysis OBJ. 2, 3 Addai Company has provided the following comparative information:

2016 2015 2014 2013 2012 Net income $ 273,406 $ 367,976 $ 631,176 $ 884,000 $ 800,000 Interest expense 616,047 572,003 528,165 495,000 440,000 Income tax expense 31,749 53,560 106,720 160,000 200,000 Total assets (ending balance) 4,417,178 4,124,350 3,732,443 3,338,500 2,750,000 Total stockholders’ equity

(ending balance) 3,706,557 3,433,152 3,065,176 2,434,000 1,550,000 Average total assets 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 1,150,000 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:

2012–2016 Rate earned on total assets 28%

Rate earned on stockholders’ equity 18%

Number of times interest charges are 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 (rounded to one decimal place):

a. Rate earned on total assets

b. Rate earned on stockholders’ equity

c. Number of times interest charges are 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).

Problems: Series B