Question: A Spahn Company manufactures backpacks. During 2017, Spahn issued bonds at 10% interest and used the cash proceeds to purchase treasury stock. The following fi nancial information is available for Spahn Company for the years 2017 and 2016.
Instructions: (a) Use the information above to calculate the following ratios for both years: (1) return on assets, (2) return on common stockholders' equity, (3) payout ratio, (4) debt to assets ratio, and (5) times interest earned.
(b) Referring to your findings in part (a), discuss the changes in the company's profitability from 2016 to 2017.
(c) Referring to your findings in part (a), discuss the changes in the company's solvency from 2016 to 2017.
(d) Based on your findings in (b), was the decision to issue debt to purchase common stock a wise one?