Profitability Ratios

The following selected data were taken from the financial statements of Vidahill Inc. for December 31, 20Y7, 20Y6, and 20Y5:

		December 31
		20Y7		20Y6		20Y5
Total assets		$243,000		$219,000		$195,000
Notes payable (8% interest)		80,000		80,000		80,000
Common stock		32,000		32,000		32,000
Preferred 4% stock, $100 par		16,000		16,000		16,000
	(no change during year)
Retained earnings		94,830		64,200		48,000

The 20Y7 net income was $31,270, and the 20Y6 net income was $16,840. No dividends on common stock were declared between 20Y5 and 20Y7. Preferred dividends were declared and paid in full in 20Y6 and 20Y7.

a. Determine the return on total assets, the rate earned on stockholders' equity, and the return on common stockholders equity for the years 20Y6 and 20Y7. When required, round to one decimal place.

	20Y7		20Y6
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.