Profitability Ratios The following selected data were taken from the financial statements of Vidahil Inc. for December 31, 2017, 2076, and 2075: December 31 2017 2016 2015 Total assets $238,000 $214,000 $190,000 Notes payable (8% interest) 80,000 80,000 80,000 Common stock 32,000 32,000 32,000 Preferred 7% stock, $100 par 16,000 16,000 16,000 (no change during year) Retained earnings 96,460 67,160 48,000 The 2017 net income was $30,420, and the 2016 net income was $20,280. No dividends on common stock were declared between 2015 and 2047. Preferred dividends were declared and paid in full in 2016 and 2017. a. Determine the return on total assets, the rate earned on stockholders' equity, and the return on common stockholders equity for the years 2046 and 2017. When required, round to one decimal place. 2017 2016 Return on total assets 16.3 % 11.8 X9 Return on stockholders' equity 23.4 % 19.2 % Return on common stockholders' equity 25.7 % 23.5 X % 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. Feedback wowy 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'equilty) * 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. Check My Work Previous Next >