Oslo Corporation decided to issue common stock and used the $300,000 proceeds to retire all of its outstanding bonds on January 1, 2010. The following information is available for the company for 2009 and 2010.
|
2010 |
2009 |
|
|
Net income |
$ 182,000 |
$ 150,000 |
|
Average stockholders’ equity |
1,000,000 |
700,000 |
|
Total assets |
1,200,000 |
1,200,000 |
|
Current liabilities |
100,000 |
100,000 |
|
Total liabilities |
200,000 |
500,000 |
Instructions
(a) Compute the return on stockholder’s equity ratio for both years.
(b) Explain how it is possible that net income increased, but the return on common stockholders’ equity decreased.
(c) Compute the debt to total assets ratio for both years, and comment on the implications of this change in the company’s solvency.