Addai Company has provided the following comparative information: 20Y8 20Y7 20Y6 20Y5 20Y4
Net income $273,406 $367,976 $631,176 $884,000 $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) 4,417,178 4,124,350 3,732,443 3,338,500 2,750,000
Total stockholders’ equity (ending balance) 3,706,557 3,433,152 3,065,176 2,434,000 1,550,000
Average total assets 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
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:
20Y4–20Y8
Return on total assets 28%
Return on stockholders’ equity 18%
Times interest earned 2.7
Ratio of liabilities to stockholders’ equity 0.4
Required:
1. Determine the following for the years 20Y4 through 20Y8 for each of the graphs below. Use the amounts given above in your calculations. Round to one decimal place:
2. Refer to the selected industry ratios provided above.
Both the return on total assets and the return on stockholders' equity have been moving in a direction in the last five years. Both measures have moved the industry average over the last two years. The cause of this decline is driven by a rapid in earnings. The company's level of debt relative to stockholders' equity has gradually over the five years. However, the in earnings along with high interest costs has caused the times interest earned ratio to the industry average in recent years.