Solvency and profitability trend analysis
Itzkoff Company has provided the following comparative information:
|
2012
|
2011
|
2010
|
2009
|
2008
|
|
Net income
|
$170,879
|
$229,985
|
$394,485
|
$552,500
|
$500,000
|
|
Interest expense
|
350,027
|
325,002
|
300,094
|
281,250
|
250,000
|
|
Income tax expense
|
49,492
|
83,179
|
166,358
|
124,800
|
156,000
|
|
Total assets (ending balance)
|
6,023,425
|
5,624,113
|
5,089,695
|
4,552,500
|
3,750,000
|
|
Total stockholders' equity
|
|
|
|
|
|
|
(ending balance)
|
2,647,848
|
2,476,970
|
2,246,985
|
1,852,500
|
1,300,000
|
|
Average total assets
|
5,823,769
|
5,356,904
|
4,821,098
|
4,151,250
|
3,375,000
|
|
Average stockholders' equity
|
2,562,409
|
2,361,977
|
2,049,743
|
1,576,250
|
1,050,000
|
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:
|
|
2008-2012
|
|
Rate earned on total assets
|
11%
|
|
Rate earned on stockholders' equity
|
16%
|
|
Number of times interest charges earned
|
3.1
|
|
Ratio of liabilities to stockholders' equity
|
1.5
|
Instructions
1. Prepare four line graphs with the ratio on the vertical axis and the years on the horizontal axis for the following four ratios (rounded to one decimal place):
a. Rate earned on total assets
b. Rate earned on stockholders' equity
c. Number of times interest charges earned
d. Ratio of liabilities to stockholders' equity
Display both the company ratio and the industry benchmark on each graph. That is, each graph should have two lines.
2. Prepare an analysis of the graphs in (1).