Solvency and profitability trend analysis

Addai Company has provided the following comparative information:

Line Item Description $20$Y$820$Y$720$Y$620$Y$520$Y$4$

Net income $$273,406$ $$367,976$ $$631,176$ $$884,000$ $$800,000$

Interest expense $616,047572,003528,165495,000440,000$

Income tax expense $31,74953,560106,720160,000200,000$

Total assets $($ending balance$)4,417,1784,124,3503,732,4433,338,5002,750,000$

Total stockholders$$ equity $($ending balance$)3,706,5573,433,1523,065,1762,434,0001,550,000$

Average total assets $4,270,7643,928,3973,535,4723,044,2502,475,000$

Average total stockholders' equity $3,569,8553,249,1642,749,5881,992,0001,150,000$

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:

Line Item Description $20$Y$420$Y$8$

Return on total assets $28\%$

Return on stockholders$$ equity $18\%$

Times interest earned $2\mathrm{.}7$

Ratio of liabilities to stockholders$$ equity $0\mathrm{.}4$

Required:

$1.$ Determine the following for the years $20$Y$4$ through $20$Y$8$ for each of the graphs below. Use the amounts given above in your calculations. Round to one decimal place:

a$.$ Return on total assets:

alt$=$ A graph compares a company$$s return on total assets to the industry$$s return on total assets. The x$-$axis is labeled Year and shows the years $20$Y$8$ to $20$Y$4$ from left to right. The y$-$axis is labeled Return on Total Assets and shows percent values from $0\mathrm{.}0\%$ to $60\mathrm{.}0\%$ in increments of $10\mathrm{.}0\%.$ The graphed values for the company$$s return on total assets are $20\mathrm{.}8\%$ for $20$Y$8,23\mathrm{.}9\%$ for $20$Y$7,32\mathrm{.}8\%$ for $20$Y$6,45\mathrm{.}3\%$ for $20$Y$5,$ and $50\mathrm{.}1\%$ for $20$Y$4.$ This shows a gradually decreasing trend for the company$$s return on total assets for the last five years. The graphed value for the industry$$s return on total assets is steady at $28\mathrm{.}0\%$ for all five years. The graph of the company$$s return on total assets moved below the industry$$s return on total assets between the years $20$Y$6$ and $20$Y$7.$

Year Ratio

$20$Y$8$ fill in the blank $1$

$20\mathrm{.}8$

$\%$

$20$Y$7$ fill in the blank $2$

$23\mathrm{.}9$

$\%$

$20$Y$6$ fill in the blank $3$

$32\mathrm{.}8$

$\%$

$20$Y$5$ fill in the blank $4$

$45\mathrm{.}3$

$\%$

$20$Y$4$ fill in the blank $5$

$50\mathrm{.}1$

$\%$

b$.$ Return on stockholders' equity:

alt$=$ A graph compares a company$$s return on stockholders$$ equity to the industry$$s return on stockholders$$ equity. The x$-$axis is labeled Year and shows the years $20$Y$8$ to $20$Y$4$ from left to right. The y$-$axis is labeled Return on Stockholders$$ Equity and shows percent values from $0\mathrm{.}0\%$ to $80\mathrm{.}0\%$ in increments of $10\mathrm{.}0\%.$ The graphed values for the company$$s return on stockholders$$ equity are $7\mathrm{.}7\%$ for $20$Y$8,11\mathrm{.}3\%$ for $20$Y$7,23\mathrm{.}0\%$ for $20$Y$6,44\mathrm{.}4\%$ for $20$Y$5,$ and $69\mathrm{.}6\%$ for $20$Y$4.$ This shows a decreasing trend for the company$$s return on stockholders$$ equity for the last five years. The graphed value for the industry$$s return on stockholders$$ equity is steady at $18\mathrm{.}0\%$ for all five years. The graph of the company$$s return on stockholders$$ equity moved below the industry$$s return on stockholders$$ equity between the years $20$Y$6$ and $20$Y$7.$

Year Ratio

$20$Y$8$ fill in the blank $6$

$\%$

$20$Y$7$ fill in the blank $7$

$\%$

$20$Y$6$ fill in the blank $8$

$\%$

$20$Y$5$ fill in the blank $9$

$\%$

$20$Y$4$ fill in the blank $10$

$\%$

c$.$ Times interest earned:

alt$=$ A graph compares a company$$s times interest earned ratio to the industry$$s times interest earned ratio. The x$-$axis is labeled Year and shows the years $20$Y$8$ to $20$Y$4$ from left to right. The y$-$axis is labeled Times Interest Earned Ratio and shows decimal values from $0\mathrm{.}0$ to $3\mathrm{.}5$ in increments of $0\mathrm{.}5.$ The graphed values for the company$$s times interest earned ratio are $1\mathrm{.}5$ for $20$Y$8,1\mathrm{.}7$ for $20$Y$7,2\mathrm{.}4$ for $20$Y$6,3\mathrm{.}1$ for $20$Y$5,$ and $3\mathrm{.}3$ for $20$Y$4.$ This shows a decreasing trend for the company$$s times interest earned ratio for the last five years. The graphed value for the industry$$s times interest earned ratio is steady at $2\mathrm{.}7$ for all five years. The graph of the company$$s times interest earned ratio moved below the industry$$s times interest earned ratio between the years $20$Y$5$ and $20$Y$6.$

Year Ratio

$20$Y$8$ fill in the blank $11$

$20$Y$7$ fill in the blank $12$

$20$Y$6$ fill in the blank $13$

$20$Y$5$ fill in the blank $14$

$20$Y$4$ fill in the blank $15$

d$.$ Ratio of liabilities to stockholders' equity:

alt$=$ A graph compares a company$$s ratio of liabilities to stockholders$$ equity to the industry$$s ratio of liabilities to stockholders$$ equity. The x$-$axis is labeled Year and shows the years $20$Y$8$ to $20$Y$4$ from left to right. The y$-$axis is labeled Ratio of Liabilities to Stockholders$$ Equity and shows decimal values from $0\mathrm{.}0$ to $0\mathrm{.}9$ in increments of $0\mathrm{.}1.$ The graphed values for the company$$s ratio of liabilities to stockholders$$ equity are $0\mathrm{.}2$ for $20$Y$8,0\mathrm{.}2$ for $20$Y$7,0\mathrm{.}2$ for $20$Y$6,0\mathrm{.}4$ for $20$Y$5,$ and $0\mathrm{.}8$ for $20$Y$4.$ The graphed value for the industry$$s ratio of liabilities to stockholders$$ equity is steady at $0\mathrm{.}4$ for all five years. The graph of the company$$s ratio of liabilities to stockholders$$ equity decreases from $20$Y$4$ to $20$Y$5,$ inters