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Chapter 15: Q30PGB (page 848)

Net sales revenue, net income, and commonA stockholders’ equity for Azbel Mission Corporation, a manufacturer of contact lenses, follow for a four-year period.

Requirements

1.Compute trend analyses for each item for 2017–2019. Use 2016 as the base year,and round to the nearest whole percent.

2.Compute the rate of return on common stockholders’ equity for 2017–2019, rounding to three decimal places.

Short Answer

Expert verified

(1) Trend analysis is shown in Step 1.

(2) The return on common Stockholder’s equity for the year 2017,2018 and 2019 are 12.460%, 11.940% and 16.714% respectively

Step by step solution

01

Computation of Trend

Compute the trend analysis for 2017-19 asfollows:

Base Year 2016

2017

2018

2019

Net Sales Revenue

$659,000

$639,000

$701,000

$758,000

Trend %

97%

106%

115%

Net Income

Trend

$42,000

$39,000

$40,000

$59,000

Trend %

93%

95%

140%

02

Step 2:Calculation the Rate of return on common stockholders' equity ratio for the years 2017 and 2018 as follows: 

2017

2018

2019

Net Income

39,000

40,000

59,000

Beginning Common Stockholder’s equity

302,000

324,000

346,000

Ending Common Stockholder’s equity

324,000

346,000

360,000

Average Common Stockholder’s equity

313,000

335,000

353,000

Return on Common Stockholder’s equity

$39,000/313,000

=12.460%

$40,000/335,000

=11.940%

$59,000/353,000

=16.714%

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Most popular questions from this chapter

Muscateer Corp. reported the following revenues and net income amounts:

(In millions)2019 2018 2017 2016

Revenue \( 9,610 \) 9,355 \( 9,050 \) 8,950

Net Income 7,290 6,790 5,020 4,300

Requirements

1. Calculate Muscateer’s trend analysis for revenues and net income. Use 2016 as the

base year, and round to the nearest percent.

2. Which measure increased at a higher rate during 2017–2019?

Question:Theater by Design and Show Cinemas are asking you to recommend their stock to your clients. Because Theater by Design and Show Cinemas earn about the same net income and have similar financial positions, your decision depends on their statement of cash flows, summarized as follows:

Theater by Design Show Cinemas

Net Cash Provided by Operating Activities \( 30,000 \) 70,000

Cash Provided by (Used for) Investing Activities:

Purchase of Plant Assets \( (20,000) \) (100,000)

Sale of Plant Assets 40,000 20,000 10,000 (90,000)

Cash Provided by (Used for) Financing Activities:

Issuance of Common Stock 0 30,000

Payment of Long-term Debt (40,000) 0

Net Increase (Decrease) in Cash \( 10,000 \) 10,000

Based on their cash flows, which company looks better? Give your reasons.

Briefly describe the ratios that can be used to evaluate a company’s profitability.

Measuring ability to pay liabilities

Requirements

1. Compute the debt ratio and the debt-to-equity ratio at May 31, 2018, for Accel’s

Companies.

2. Is Accel’s ability to pay its liabilities strong or weak? Explain your reasoning.

Big Beautiful Photo Shop has asked you to determine whether the company’s ability to pay current liabilities and total liabilities improved or deteriorated during 2018. To answer this question, you gather the following data:

2018

2017

Cash

\(58,000

\)47,000

Short-term Investments

34,000

0

Net Accounts Receivable

140,000

124,000

Merchandise Inventory

217,000

272,000

Total Assets

530,000

565,000

Total Current Liabilities

288,000

205,000

Long-term Notes Payable

40,000

50,000

Income from Operations

165,000

158,000

Interest Expense

55,000

41,000

Compute the following ratios for 2018 and 2017, and evaluate the company’s ability to pay its current liabilities and total liabilities:

a. Current ratio

b. Cash ratio

c. Acid-test ratio

d. Debt ratio

e. Debt to equity ratio
See all solutions

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