Question

45. FINANCIAL RATIOS DuBois Furniture, Inc., reported these figures for 20x7 and 20x6: Income statement: 20x7 20x6 12,000,000 18,700,000 Net income Balance sheet: Preferred stock, $1.30, no-par, 100,000 shares issued and outstanding Common stockholders' equity Total stockholders' equity .. 2,500,000 2,500,000

Answer 1

	STEP 1: FORMULA
	Return on Assets = Net Income / Average Assets of Company
	Return on Assets = ( Opening Assets + Closing Assets ) / 2
	Opening Assets =	$         31,70,00,000
	Closing Assets	$         35,10,00,000
	Total Assets =	$         66,80,00,000
	Average Assets = Total Assets / 2 =	$         33,40,00,000
	STEP 2: CALCULATION OF THE RATIO
	Return on Assets for the year 20X7=
	Net Income =	$           1,20,00,000
	Divide By	"/" By
	Avergae Assets	$         33,40,00,000
	Return on Assets =	3.59%
	STEP 3: ANSWER
	Answer = Return on Assets =	3.59%
	Return on Equity Ratio = Net Income / Average Shareholder's Equity
	Average Stakeholder's Equity =
	Stockholder's equity for 20X6	$         15,35,00,000
	Add:Stockholder's equity for 20X7	$         16,65,00,000
	Total	$         32,00,00,000
	Divide by 2	"/ " By 2
	Average Stakeholder's Equity =	$         16,00,00,000
	STEP 2: CALCULATION OF THE RATIO
	Return on Equity = Net Income / Average Shareholder's Equity
	Return on Equity =
	Net Income =	$     1,20,00,000.00
	Divide By	"/" By
	Average Stakeholder's Equity =	$         16,00,00,000
	Return on Equity =	7.50%
	STEP 3: ANSWER
	Return on Equity for the year 20X7=	7.50%
	Return on Assets are showing weakness but at the same time return on shareholder's equity
	is showing strength