BuyFindarrow_forward

Survey of Accounting (Accounting I)

8th Edition
Carl Warren
ISBN: 9781305961883

Solutions

Chapter
Section
BuyFindarrow_forward

Survey of Accounting (Accounting I)

8th Edition
Carl Warren
ISBN: 9781305961883
Textbook Problem

Profitability metrics

The following selected data were taken from the financial statements of The O'Malley Group Inc. for December 31, 20Y5. 20Y4. and 20Y3:


No dividends on common stock were declared between 20Y3 and 20Y5.

a.Determine the return on total assets, the return on stockholders' equity, and the return on common stockholders' equity Tor the years 20Y4 and 20Y5. Round to one decimal place.
b. What conclusions can be drawn from these data as to the company's profitability?

To determine

(a)

Concept Introduction:

Profitability analysis:

Ithelps to evaluate the ability of a company to generate income relative to revenue, assets, operating cost and shareholders' equity during a specific period.

It measures how efficiently the resources have been utilised to generate profit.

To calculate:

Return on total assets, return on common stockholders' equity and return on stockholders' equity for the year 20Y4 and 20Y5

Explanation

  Return on total assets=net income+interest expenses Average total assets

  Return on shareholders'equity=net income-preferred dividends shareholders equity

  Return on commonstock holders equity =net income common stock holders equity

    Particulars20Y520Y4
    Net income$530,000$430,000
    Interest on Notes Payable$800,000×5%=$40,000$800,000×5%=$40,000
    Preferred Dividends$30,000$30,000
    Particulars20Y520Y4
    Common Stock (A)$250,000$250,000
    Preferred Stock (B)$400,000$400,000
    Retained Earnings (C)$1,450,000$950,000
    Total Stockholders' Equity (A+B+C)$2,100,000$1,600,000
    Total Common Stockholders' Equity (A+C)$1,700,000$1,200,000
    Total Assets (Beginning)$2,400,000$2,000,000
    Total Assets (Ending)$2,900,000$2,400,000
    Total Assets (Average)$2,900,000+$2,400,0002 =$2,650,000$2
To determine

(b)

Concept Introduction:

Profitability analysis:

It is used to evaluate the ability of a company to generate income relative to revenue, assets, operating cost and shareholders' equity during a specific period.

It measures how efficiently the resources have been utilised to generate profit.

To analyze:

The calculated ratios to evaluate company's profitability.

Still sussing out bartleby?

Check out a sample textbook solution.

See a sample solution

The Solution to Your Study Problems

Bartleby provides explanations to thousands of textbook problems written by our experts, many with advanced degrees!

Get Started

Additional Business Solutions

Find more solutions based on key concepts

Show solutions add

How does a note receivable differ from an account receivable?

College Accounting, Chapters 1-27 (New in Accounting from Heintz and Parry)

P/E AND STOCK PRICE Fontaine Inc. recently reported net income of 2 million. It has 500,000 shares of common st...

Fundamentals of Financial Management, Concise Edition (with Thomson ONE - Business School Edition, 1 term (6 months) Printed Access Card) (MindTap Course List)