Question

Solvency and Profitability Trend Analysis Addai Company has provided the following comparative information: 2048 2017 Net income $273,406 $367,976 2016 $631,176 2015 $884,000 2014 $800,000 Interest expense 616,047 572,003 528,165 495,000 440,000 Income tax expense 31,749 53,560 106,720 160,000 200,000 Total assets (ending balance) Total stockholders' equity (ending balance) 4,417,178 3,706,557 4,270,764 3,569,855 4,124,350 3,433,152 3,928,396 3,249,164 3,732,443 3,065,176 3,535,472 2,749,588 3,338,500 2,434,000 3,044,250 1,992,000 2,750,000 1,550,000 2,475,000 1,150,000 Average total assets Average total stockholders' equity 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: 2014-2018 Return on total assets 28% Return on stockholders' equity 18% Times interest earned 2.7 Ratio of liabilities to stockholders' equity 0.4

Answer 1

Ans. (a) Return on Total Assets:

20X8- 6.40%

20X7- 9.37%

20X6- 17.85%

20X5- 29.04%

20X4- 32.32%

(b) Return on Stockholder's Equity:

20X8- 7.66%

20X7- 11.33%

20X6- 22.96%

20X5- 44.38%

20X4- 69.57%

(c) Times Interest Earned:

20X8- 1.495 Times

20X7- 1.74 Times

20X6- 2.40 Times

20X5- 3.11 Times

20X4- 3.27 Times

(d) Ratio of Laiabilities to Stockholder's Equity- Year wise data for liabilities not given