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Solvency and Profitability Trend Analysis Addai Company has provided the following comparative information: 20Y8 20Y7 20Y6 20Y5 20Y4 Net income $1,014,300 $874,400 $734,800 $628,000 $532,200

Solvency and Profitability Trend Analysis

Addai Company has provided the following comparative information:

20Y8 20Y7 20Y6 20Y5 20Y4
Net income $1,014,300 $874,400 $734,800 $628,000 $532,200
Interest expense 344,900 314,800 271,900 207,200 165,000
Income tax expense 324,576 244,832 205,744 163,280 127,728
Total assets (ending balance) 7,358,917 7,827,675 5,609,613 5,895,529 4,470,776
Total stockholders' equity (ending balance) 2,291,128 2,818,696 1,795,552 2,275,362 1,365,218
Average total assets 7,593,296 6,718,644 5,752,571 4,912,941 4,200,000
Average stockholders' equity 2,554,912 2,307,124 2,035,457 1,820,290 1,607,855

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:

20Y420Y8
Return on total assets 17.6%
Return on stockholders equity 36.5%
Times interest earned 4.6
Ratio of liabilities to stockholders' equity 2.1

Required:

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

a. Return on total assets:

20Y8 %
20Y7 %
20Y6 %
20Y5 %
20Y4 %

b. Return on stockholders equity:

20Y8 %
20Y7 %
20Y6 %
20Y5 %
20Y4 %

c. Times interest earned:

20Y8
20Y7
20Y6
20Y5
20Y4

d. Ratio of liabilities to stockholders' equity:

20Y8
20Y7
20Y6
20Y5
20Y4

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 positive direction in the last five years. Both measures have moved above the industry average over the last two years. The cause of this change is driven by a rapid increase in earnings.

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