Jolie Foster Care Homes Inc. shows the following data:

Year	Net Income	Total assets	Stockholder’s Equity	Total debts
20X1	\(155,000	\)2,390,000	\(761,000	\)1,629,000
20X2	191,000	2,700,000	966,000	1,734,000
20X3	208,000	2,730,000	1,770,000	960,000
20X4	192,000	2,470,000	2,220,000	250,000

b. Compute the ratio of net income to stockholders’ equity and comment on the trend. Explain why there may be a difference in the trends between parts a and b.

$\begin{array}{rcl}\mathrm{Net}\mathrm{income}\mathrm{to}\mathrm{stockholder}\text{'}\mathrm{s}\mathrm{equity}\mathrm{ratio}& =& \frac{\mathrm{Net}\mathrm{income}}{\mathrm{Stockholder}\text{'}\mathrm{s}\mathrm{equity}}\\ & =& \frac{\$155,000}{\$761,000}\\ & =& 20.37\%\end{array}$

The net income to stockholder’s equity of the company for the year 20X1 is 20.37%

$\begin{array}{rcl}\mathrm{Net}\mathrm{income}\mathrm{to}\mathrm{stockholder}\text{'}\mathrm{s}\mathrm{equity}\mathrm{ratio}& =& \frac{\mathrm{Net}\mathrm{income}}{\mathrm{Stockholder}\text{'}\mathrm{s}\mathrm{equity}}\\ & =& \frac{\$191,000}{\$966,000}\\ & =& 19.77\%\end{array}$

The net income to stockholder’s equity of the company for the year 20X2 is 19.77%

$\begin{array}{rcl}\mathrm{Net}\mathrm{income}\mathrm{to}\mathrm{stockholder}\text{'}\mathrm{s}\mathrm{equity}\mathrm{ratio}& =& \frac{\mathrm{Net}\mathrm{income}}{\mathrm{Stockholder}\text{'}\mathrm{s}\mathrm{equity}}\\ & =& \frac{\$208,000}{\$1,770,000}\\ & =& 11.75\%\end{array}$

The net income to stockholder’s equity of the company for the year 20X3 is 11.75%

$\begin{array}{rcl}\mathrm{Net}\mathrm{income}\mathrm{to}\mathrm{stockholder}\text{'}\mathrm{s}\mathrm{equity}\mathrm{ratio}& =& \frac{\mathrm{Net}\mathrm{income}}{\mathrm{Stockholder}\text{'}\mathrm{s}\mathrm{ratio}}\\ & =& \frac{\$192,000}{\$2,220,000}\\ & =& 8.65\%\end{array}$

The net income to stockholder’s equity of the company for the year 20X4 is 8.65%. In addition, there is downward movement in return on equity over the four year period, becaue the stockholder’s equity is rapidly increasing in comparison to the net income of the company.