Solvency and Profitability Trend Analysis

Crosby Company has provided the following comparative information:

	20Y8		20Y7		20Y6		20Y5		20Y4
Net income	$5,571,720		$3,714,480		$2,772,000		$1,848,000		$1,400,000
Interest expense	1,052,060		891,576		768,600		610,000		500,000
Income tax expense	1,225,572		845,222		640,320		441,600		320,000
Total assets (ending balance)	29,378,491		22,598,839		17,120,333		12,588,480		10,152,000
Total stockholders equity (ending balance)	18,706,200		13,134,480		9,420,000		6,648,000		4,800,000
Average total assets	25,988,665		19,859,586		14,854,406		11,370,240		8,676,000
Average total stockholders' equity	15,920,340		11,277,240		8,034,000		5,724,000		4,100,000

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:

	20Y420Y8
Return on total assets	19%
Return on stockholders equity	26%
Times interest earned	3.4
Ratio of liabilities to stockholders equity	1.4

Required:

1. Determine the following for the years 20Y4 through 20Y8 for each of the graphs below. Use the amounts given above in your calculations. 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. Overall, these ratios indicate strong financial performance coupled with appropriate use of debt (leverage).

olvency and Profitability Trend Analysis Crosby Company has provided the following comparative information: 2018 20Y7 2046 2045 2014 $1,400,000 500,000 320,000 Net income $5,571,720 $3,714,480 $2,772,000 $1,848,000 Interest expense 1,052,060 891,576 768,600 610,000 Income tax expense 1,225,572 845,222 640,320 441,600 Total assets (ending balance) 29,378,491 22,598,839 17,120,333 12,588,480 Total stockholders' equity (ending balance) 18,706,200 13,134,480 9,420,000 6,648,000 Average total assets 25,988,665 19,859,586 14,854,406 11,370,240 Average total stockholders' equity 15,920,340 11,277,240 8,034,000 5,724,000 You have been asked to evaluate the historical performance of the company over the last five years. 10,152,000 4,800,000 8,676,000 4,100,000 Selected industry ratios have remained relatively steady at the following levels for the last five years: 2014-2018 Return on total assets 19% Return on stockholders' equity 26% 3.4 Times interest earned Ratio of liabilities to stockholders' equity 1.4 96% M WAL 1. Determine the following for the years 2014 through 2048 for each of the graphs below. Use the amounts given above in your calculations. Round to one decimal place. a. Return on total assets: 30.0% 25.0% 20.0% Retum on Total Assets 15.0% 10.0% 5.0% 0.0% 20Y8 2017 2016 2045 2014 Year Company's retum on total assets Industry retum on total assets 2018 35 X % 20Y8 2047 2016 20Y5 2014 Year Company's return on total assets +Industry return on total assets 2048 35 X % 2017 18.7 X % 2016 18.66 X % 2015 16.25 X % 2014 16.14 X % b. Return on stockholders' equity: 40.0% 35.0% 30.0% kholders' Equity 25.0% 20 0% Check My Work 35.0% 30.0% 25.0% Retum on Stockholders' Equity 20.0% 15.0% 10.0% 5.0% 0.0% 20Y8 20Y7 2016 2015 2014 Year - Company's return on stockholders' equity Industry retum on stockholders' equity 2018 35. % Year - Company's return on stockholders' equity Industry return on stockholders' equity 2048 35. % 2047 32.9 % 2016 34.5 % 2045 32.3 % 2014 34.1 % c. Times interest earned: 8.0 7.0 6.0 5.0 prest Earned 4.0 3.0 Times Inter 2.0 1.0 0.0 20Y8 2017 2016 2045 2014 Year -Company's times interest eamed Industry times interest eamed 2018 7.5 2017 6.1 2016 5.4 2015 4.8 2014 4.4 d. Ratio of liabilities to stockholders' equity: 1.6 Ratio of liabilities to stockholders' equity: 1.6 1.4 1.2 1.0 0.8 Ratio of Liabilities to Stockholders' Equity 0.6 0.4 0.2 20Y8 2017 20Y6 2015 20Y4 Year Company's liabilities to equity Industry liabilities to equity 20Y8 0.57 X 2017 0.72 X 2016 82 X 2045 89 X 2014 1.12 X 2. Refer to the selected industry ratios provided above. Overall, these ratios indicate strong appropriate use of debt (leverage). Feedback Check My Work a. Divide the sum of net income plus interest expense by average total assets. b. Divide net income by average total stockholders' equity. Check My Work