27BP_a Jolie Foster Care Homes Inc. sho... [FREE SOLUTION]

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Foundations Of Financial Management

Stanley B. Block, Geoffrey A. Hirt, Bartley Danielsen

Business Studies

16th Edition 路 768 pages

ISBN: 9781259277160

Chapter 2: 27BP_a (page 84)

Jolie Foster Care Homes Inc. shows the following data:
Year
Net Income
Total assets
Stockholder鈥檚 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
a. Compute the ratio of net income to total assets for each year and commenton the trend.

Short Answer

Expert verified

The net income to total assets ratio of the company is:

Year	Net income to total asset ratio
20X1	6.49%
20X2	7.07%
20X3	7.62%
20X4	7.77%

The trend of net income to total asset ratio of Jolie foster care homes Inc. is increasing due to a higher increase in net income of the company than the corresponding increase in its total assets.

Step by step solution

Net Income to total assets ratio for the year ending 20X1:

$\begin{array}{rcl} Net income to total asset ratio & = & \frac{Net income}{Total assets} \\ = & \frac{$ 155, 000}{$ 2, 390, 000} \\ = & 6.49 % \end{array}$

The net income to total assets ratio of the company for the year ending 20X1 is 6.49%

Net Income to total assets ratio for the year ending 20X2:

$\begin{array}{rcl} Net income to total asset ratio & = & \frac{Net income}{Total assets} \\ = & \frac{$ 191, 000}{$ 2, 700, 000} \\ = & 7.07 % \end{array}$

The net income to total assets ratio of the company for the year ending 20X2 is 7.07%

Net Income to total assets ratio for the year ending 20X3:

$\begin{array}{rcl} Net income to total asset ratio & = & \frac{Net income}{Total assets} \\ = & \frac{$ 192, 000}{$ 2, 730, 000} \\ = & 7.62 % \end{array}$

The net income to total assets ratio of the company for the year ending 20X3 is 7.62%.

Net Income to total assets ratio for the year ending 20X4:

$\begin{array}{rcl} Net income to total asset ratio & = & \frac{Net income}{Total assets} \\ = & \frac{$ 192, 000}{$ 2, 470, 000} \\ = & 7.77 % \end{array}$

The net income to total assets ratio of the company for the year ending 20X4 is 7.77%. In addition, there is an upward movement in return on assets over the four-year period.

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Short Answer

Step by step solution

Net Income to total assets ratio for the year ending 20X1:

Net Income to total assets ratio for the year ending 20X2:

Net Income to total assets ratio for the year ending 20X3:

Net Income to total assets ratio for the year ending 20X4:

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Year	Net Income	Total assets	Stockholder鈥檚 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