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Solvency and Profitability Trend Analysis

Addai Company has provided the following comparative information:

20Y820Y720Y620Y520Y4Net income$1,298,700 $1,119,600 $940,800 $804,100 $681,400 Interest expense441,600 403,100 348,100 265,400 211,200 Income tax expense415,584 313,488 263,424 209,066 163,536 Total assets (ending balance)8,253,482 8,725,054 6,276,916 6,547,960 4,965,536 Total stockholders' equity (ending balance)2,608,154 3,163,846 2,019,488 2,525,440 1,515,264 Average total assets8,489,268 7,500,985 6,412,438 5,456,633 4,648,958 Average stockholders' equity2,886,000 2,591,667 2,272,464 2,020,352 1,774,479

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:

20Y420Y8Return on total assets20.2% Return on stockholders equity41.8% Times interest earned4.6 Ratio of liabilities to stockholders' equity2.1

Required:

1. Determine the following for the years 20Y4 through 20Y8. Round to one decimal place:

a. Return on total assets:

20Y8fill in the blank 1 %20Y7fill in the blank 2 %20Y6fill in the blank 3 %20Y5fill in the blank 4 %20Y4fill in the blank 5 %

b. Return on stockholders equity:

20Y8fill in the blank 6 %20Y7fill in the blank 7 %20Y6fill in the blank 8 %20Y5fill in the blank 9 %20Y4fill in the blank 10 %

c. Times interest earned:

20Y8fill in the blank 1120Y7fill in the blank 1220Y6fill in the blank 1320Y5fill in the blank 1420Y4fill in the blank 15

d. Ratio of liabilities to stockholders' equity:

20Y8fill in the blank 1620Y7fill in the blank 1720Y6fill in the blank 1820Y5fill in the blank 1920Y4fill in the blank 20

2. Refer to the selected industry ratios provided above.

Both the rate earned on total assets and the rate earned on stockholders' equity have been moving in a

positivenegative

direction in the last five years. Both measures have moved

abovebelow

the industry average over the last two years. The cause of this change is driven by a rapid

increasedecrease

in earnings.