Problem

Evaluating profitability [10-15 min]Lofty Exploration Company reported these figures for 2...

Evaluating profitability [10-15 min]

Lofty Exploration Company reported these figures for 2012 and 2011:

 

2012

2011

Income Statement—partial:

  

Interest expense

12,400,000

17,400,000

Net Income

17,900,000

19,100,000

 

2012

2011

Balance Sheet—partial:

 

 

Total assets

$ 328,000,000

$ 318,000,000

Preferred stock, $2, no-par, 150,000 shares authorized, issued and outstanding

$ 2,400,000

$ 2,400,000

Common stockholders’ equity

178,000,000

171,000,000

Retained earnings

4,000,000

3,000,000

Total stockholders’ equity

$ 184,400,000

$ 176,400,000

Requirements

1. Compute rate of return on total assets and rate of return on common stockholders’ equity for 2012.


2. Do these rates of return suggest strength or weakness? Give your reason.

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