Compute Return On Stockholders' Equity
1. Referring to Exhibit 1, compute the annual percentage change in net income per common share-diluted for 1998–1999, 1999–2000, and 2000–2001.
(Year 1998) 3,180 x .24 = 763.20
763.20-1,017.42/763.20=.33 or 33% increase
(Year 1999) 3,282 x .31 = 1,017.42 Year 1998–1999 = 33% increase
1,017.42-1,858.45/1,017.42=.82 or 82% increase
(Year 2000) 3,379 x .55 = 1,858.45 Year 1999–2000 = 82% increase
1,858.45- 922.59/1,858.45= -.50 or 50% decrease
(Year 2001) 3,417 x .27 = 922.59 Year 2000–2001 = 50% decrease
The amount of shares has increased every year over the past 4 years. The net income per common share-diluted was increasing steadily ever year until 2001 where we saw a drop in income but a raise in revenue.
2. Compute net income/net revenue (sales) for each of the four years. Begin with 1998.
(Year 1998) 755/9,862 = .076 or 7% (Year 1999) 1,030/11,806 = .087 or 8%
(Year 2000) 1,854/15,721 = .118 or 11% (Year 2001) 927/18,250 = .051 or 5%
The net revenue has increased every year over the past 4 years. The net income/net revenue was increasing steadily ever year until 2001 where we saw a drop in income but a raise in revenue.
3. What is the major reason for the change in the answer for question 2 between 2000 and 2001? To answer this question for each of the two years, take the ratio of the major income statement accounts to net revenues (sales).
Year 2000 Cost of sales 7,549/15,721 =.48 or 48%
Research and development 1,630/15,721 = .10 or 10%
Selling, general and administrative expense 4,072/15,721 =.26 or 26%
Provision for income tax 917/15,721 =.06 or 6%
Year 2001 Cost of sales 10,041/18,250 =.55 or 55%
Research and development 2,016/18,250 = .11 or 11%
Selling, general and administrative expense 4,544/18,250 =.25 or 25%
Provision for income tax...
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