Addai Company has provided the following comparative information:       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: 2010-2014 Rate earned on total assets ........28% Rate earned on stockholders' equity .....18% Number of times interest charges are earned. 2.7 Ratio of liabilities to stockholders' equity... 0.4 Instructions 1. Prepare four line graphs with the ratio on the vertical axis and the years on the horizontal axis for the following four ratios (rounded to one decimal place): a. Rate earned on total assets b. Rate earned on stockholders' equity c. Number of times interest charges are earned d. Ratio of liabilities to stockholders' equity Display both the company ratio and the industry benchmark on each graph. That is, each graph should have two lines. 2. Prepare an analysis of the graphs in(1).

Corporate Fin Focused Approach
5th Edition
ISBN:9781285660516
Author:EHRHARDT
Publisher:EHRHARDT
Chapter2: Financial Statements, Cash Flow, And Taxes
Section: Chapter Questions
Problem 14SP
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Addai Company has provided the following comparative information:

 

 

 

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:
2010-2014
Rate earned on total assets ........28%
Rate earned on stockholders' equity .....18%
Number of times interest charges are earned. 2.7
Ratio of liabilities to stockholders' equity... 0.4

Instructions
1. Prepare four line graphs with the ratio on the vertical axis and the years on the horizontal axis for the following four ratios (rounded to one decimal place):
a. Rate earned on total assets
b. Rate earned on stockholders' equity
c. Number of times interest charges are earned
d. Ratio of liabilities to stockholders' equity
Display both the company ratio and the industry benchmark on each graph. That is, each graph should have two lines.
2. Prepare an analysis of the graphs in(1).

2014
2013
2012
2011
2010
$ 273,406
$ 367,976 $ 631,176
$ 884,000 $ 800,000
Net income
Interest expense
616,047
31,749
572,003
528,165
495,000
440,000
Income tax expense
53,560
106,720
160,000
200,000
Total assets (ending balance)
4,417,178
4,124,350
3,732,443
3,338,500
2,750,000
Total stockholders'equity
(ending balance)
Average total assets
3,706,557
3,433,152
3,065,176
2,434,000
1,550,000
4,270,764
3,928,396
3,535,472
3,044,250
2,475,000
Average total stockholders' equity 3,569,855
3,249,164
2,749,588
1,992,000
1,150,000
Transcribed Image Text:2014 2013 2012 2011 2010 $ 273,406 $ 367,976 $ 631,176 $ 884,000 $ 800,000 Net income Interest expense 616,047 31,749 572,003 528,165 495,000 440,000 Income tax expense 53,560 106,720 160,000 200,000 Total assets (ending balance) 4,417,178 4,124,350 3,732,443 3,338,500 2,750,000 Total stockholders'equity (ending balance) Average total assets 3,706,557 3,433,152 3,065,176 2,434,000 1,550,000 4,270,764 3,928,396 3,535,472 3,044,250 2,475,000 Average total stockholders' equity 3,569,855 3,249,164 2,749,588 1,992,000 1,150,000
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