32.000 Profitability Ratios The following selected data were taken from the financial statements of Vidahill Inc. for December 31, 2017, 2076, and 2075: December 31 2017 2046 2015 $238.000 5390,000 Notes payable (8% interest 30.000 80,000 30,000 Common stock 32.000 32.000 Preferred stock, 5100 16.000 16,000 36,000 (no charge during var Retained emings 43,000 The 2017 net income was $30,420, and the 2016 net income was $20,280. No dividends on common stock were declared between 2045 and 2017. Preferred dividends were declared and paid in full in 2046 and 2017. a. Determine the return on total assets, the rate eamed on stockholders' equity, and the return on common stockholders' equity for the years 2016 and 2017. When required, round to one decimal place. 2017 2016 Return on total assets Return on stockholders equity Return on common stockholders' equity b. The profitability ratios indicate that Vidahill Inc.'s profitability has improved Since the rate of return on assets is less than the return on stockholders' equity in both years, there must be positive leverage from the use of debt. a. Divide the sum of net income plus interest expense by average total assets. Average total assets - (Beginning total assets + Ending total assets) + 2. Divide net income by average total stockholders'equity. Average total stockholders'equity = (Beginning total stockholders'equity + Ending total stockholders'equity) +2. Divide net income minus preferred dividends by average common stockholders'equity. Common stockholders'equity = Common stock + Retained earnings. Average common stockholders'equity = (Beginning common stockholders'equity + Ending common stockholders'equity) + 2. b. Consider what the ratios tell you about the company's performance. Learning Objective 5