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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