會(huì)計(jì)學(xué)（第21版）課件：Financial Statement Analysis

FinancialStatementAnalysisAccounting,21stEditionWarrenReeveFess

Someoftheactionhasbeenautomated,soclickthemousewhenyouseethislightningboltinthelowerright-handcornerofthescreen.Youcanpointandclickanywhereonthescreen.1. Listthebasicfinancialstatementanalyticalprocedures.2. Applyfinancialstatementanalysistoassessthesolvencyofabusiness.3. Applyfinancialstatementanalysistoassesstheprofitabilityofabusiness.4. Summarizetheusesandlimitationsofanalyticalmeasures.5. Describethecontentsofcorporateannualreports.ObjectivesAfterstudyingthischapter,youshouldbeableto:HorizontalAnalysisWhatishorizontalanalysis?HorizontalAnalysisIt’sananalysisofthepercentageincreasesanddecreasesofrelateditemsincomparativefinancialstatements.LincolnCompany

ComparativeBalanceSheet

December31,2006and2005

Assets

Currentassets $550,000 $533,000 $17,000 3.2%Long-terminvestments 95,000 177,500 (82,500) (46.5%)Fixedassets(net) 444,500 470,000 (25,500) (5.4%)Intangibleassets 50,000 50,000 —Totalassets $1,139,500 $1,230,500 $(91,000) (7.4%)

LiabilitiesCurrentliabilities $210,000 $243,000 $(33,000) (13.6%)Long-termliabilities 100,000 200,000 (100,000) (50.0%)Totalliabilities $310,000 $443,000 $(133,000) (30.0%)

Stockholders’EquityPreferred6%stock,$100par $150,000 $150,000 —Commonstock,$10par 500,000 500,000 —Retainedearnings 179,500 137,500 $42,000 30.5%Totalstockholders’equity $829,500 $787,500 $42,000 5.3%Totalliab.&SE $1,139,500 $1230,500 $(91,000) (7.4%)

2006 2005 Amount PercentBalanceSheetIncrease(Decrease)

Assets

Currentassets $550,000 $533,000 $17,000 3.2%Long-terminvestments 95,000 177,500 (82,500) (46.5%)Fixedassets(net) 444,500 470,000 (25,500) (5.4%)Intangibleassets 50,000 50,000 —Totalassets $1,139,500 $1,230,500 $(91,000) (7.4%)

LiabilitiesCurrentliabilities $210,000 $243,000 $(33,000) (13.6%)Long-termliabilities 100,000 200,000 (100,000) (50.0%)Totalliabilities $310,000 $443,000 $(133,000) (30.0%)

Stockholders’EquityPreferred6%stock,$100par $150,000 $150,000 —Commonstock,$10par 500,000 500,000 —Retainedearnings 179,500 137,500 $42,000 30.5%Totalstockholders’equity $829,500 $787,500 $42,000 5.3%Totalliab.&SE $1,139,500 $1230,500 $(91,000) (7.4%)HorizontalAnalysis:LincolnCompany

ComparativeBalanceSheet

December31,2006and2005

Difference $17,000Baseyear(2005) $533,000=3.2%

2006 2005 Amount PercentIncrease(Decrease)

Assets

Currentassets $550,000 $533,000 $17,000 3.2%Long-terminvestments 95,000 177,500 (82,500) (46.5%)Fixedassets(net) 444,500 470,000 (25,500) (5.4%)Intangibleassets 50,000 50,000 —Totalassets $1,139,500 $1,230,500 $(91,000) (7.4%)

LiabilitiesCurrentliabilities $210,000 $243,000 $(33,000) (13.6%)Long-termliabilities 100,000 200,000 (100,000) (50.0%)Totalliabilities $310,000 $443,000 $(133,000) (30.0%)

Stockholders’EquityPreferredstock,$100par $150,000 $150,000 —Commonstock,$10par 500,000 500,000 —Retainedearnings 179,500 137,500 $42,000 30.5%Totalstockholders’equity $829,500 $787,500 $42,000 5.3%Totalliab.&SE $1,139,500 $1230,500 $(91,000) (7.4%)HorizontalAnalysis:

Difference $(82,500)Baseyear(2005) $177,500=(46.5%)LincolnCompany

ComparativeBalanceSheet

December31,2006and2005

2006 2005 Amount PercentIncrease(Decrease)

Assets

Currentassets $550,000 $533,000 $17,000 3.2%Long-terminvestments 95,000 177,500 (82,500) (46.5%)Fixedassets(net) 444,500 470,000 (25,500) (5.4%)Intangibleassets 50,000 50,000 —Totalassets $1,139,500 $1,230,500 $(91,000) (7.4%)

LiabilitiesCurrentliabilities $210,000 $243,000 $(33,000) (13.6%)Long-termliabilities 100,000 200,000 (100,000) (50.0%)Totalliabilities $310,000 $443,000 $(133,000) (30.0%)

Stockholders’EquityPreferred6%stock,$100par $150,000 $150,000 —Commonstock,$10par 500,000 500,000 —Retainedearnings 179,500 137,500 $42,000 30.5%Totalstockholders’equity $829,500 $787,500 $42,000 5.3%Totalliab.&SE $1,139,500 $1230,500 $(91,000) (7.4%)HorizontalAnalysis:

Difference ?Baseyear(2005) ?=?LincolnCompany

ComparativeBalanceSheet

December31,2006and2005

2006 2005 Amount PercentIncrease(Decrease)Okay,gotothenextslideandcalculatethepercentagechangeforfixedassets.

Assets

Currentassets $550,000 $533,000 $17,000 3.2%Long-terminvestments 95,000 177,500 (82,500) (46.5%)Fixedassets(net) 444,500 470,000 (25,500) (5.4%)Intangibleassets 50,000 50,000 —Totalassets $1,139,500 $1,230,500 $(91,000) (7.4%)

LiabilitiesCurrentliabilities $210,000 $243,000 $(33,000) (13.6%)Long-termliabilities 100,000 200,000 (100,000) (50.0%)Totalliabilities $310,000 $443,000 $(133,000) (30.0%)

Stockholders’EquityPreferred6%stock,$100par $150,000 $150,000 —Commonstock,$10par 500,000 500,000 —Retainedearnings 179,500 137,500 $42,000 30.5%Totalstockholders’equity $829,500 $787,500 $42,000 5.3%Totalliab.&SE $1,139,500 $1230,500 $(91,000) (7.4%)LincolnCompany

ComparativeBalanceSheet

December31,2006and2005(5.4%)

2006 2005 Amount PercentIncrease(Decrease)Sales $1,530,500 $1,234,000 $296,500 24.0%Salesreturns 32,500 34,000 (1,500) (4.4%)Netsales $1,498,000 $1,200,000 $298,000 24.8%Costofgoodssold 1,043,000 820,000 223,000 27.2%Grossprofit $455,000 $380,000 $75,000 19.7%Sellingexpenses $191,000 $147,000 $44,000 29.9%Administrativeexpenses 104,000 97,400 6,600 6.8%Totaloperatingexpenses $295,000 $244,400 $50,600 20.7%Operatingincome $160,000 $135,600 $24,400 18.0%Otherincome 8,500 11,000 (2,500) (22.7%) $168,500 $146,600 $21,900 14.9%Otherexpense 6,000 12,000 (6,000) (50.0%)Incomebeforeincometax $162,500 $134,600 $27,900 20.7%Incometax 71,500 58,100 13,400 23.1%Netincome $91,000 $76,500 $14,500 19.0%LincolnCompany

ComparativeIncomeStatement

December31,2006and2005

2006 2005 Amount PercentIncrease(Decrease)IncomeStatementSales $1,530,500 $1,234,000 $296,500 24.0%Salesreturns 32,500 34,000 (1,500) (4.4%)Netsales $1,498,000 $1,200,000 $298,000 24.8%Costofgoodssold 1,043,000 820,000 223,000 27.2%Grossprofit $455,000 $380,000 $75,000 19.7%Sellingexpenses $191,000 $147,000 $44,000 29.9%Administrativeexpenses 104,000 97,400 6,600 6.8%Totaloperatingexpenses $295,000 $244,400 $50,600 20.7%Operatingincome $160,000 $135,600 $24,400 18.0%Otherincome 8,500 11,000 (2,500) (22.7%) $168,500 $146,600 $21,900 14.9%Otherexpense 6,000 12,000 (6,000) (50.0%)Incomebeforeincometax $162,500 $134,600 $27,900 20.7%Incometax 71,500 58,100 13,400 23.1%Netincome $91,000 $76,500 $14,500 19.0%HorizontalAnalysis:

Increaseamount $296,500Baseyear(2005) $1,234,000=24.0%24.0%LincolnCompany

ComparativeIncomeStatementDecember31,2006and2005

2006 2005 Amount PercentIncrease(Decrease)Sales $1,530,500 $1,234,000 $296,500 24.0%Salesreturns 32,500 34,000 (1,500) (4.4%)Netsales $1,498,000 $1,200,000 $298,000 24.8%Costofgoodssold 1,043,000 820,000 223,000 27.2%Grossprofit $455,000 $380,000 $75,000 19.7%Sellingexpenses $191,000 $147,000 $44,000 29.9%Administrativeexpenses 104,000 97,400 6,600 6.8%Totaloperatingexpenses $295,000 $244,400 $50,600 20.7%Operatingincome $160,000 $135,600 $24,400 18.0%Otherincome 8,500 11,000 (2,500) (22.7%) $168,500 $146,600 $21,900 14.9%Otherexpense 6,000 12,000 (6,000) (50.0%)Incomebeforeincometax $162,500 $134,600 $27,900 20.7%Incometax 71,500 58,100 13,400 23.1%Netincome $91,000 $76,500 $14,500 19.0%HorizontalAnalysis:Increaseamount $298,000Baseyear(2005) $1,200,000=24.8%24.8%LincolnCompany

ComparativeIncomeStatementDecember31,2006and2005

2006 2005 Amount PercentIncrease(Decrease)VerticalAnalysisApercentageanalysiscanbeusedtoshowtherelationshipofeachcomponenttoatotalwithinasinglestatement.Thetotal,or100%item,onthebalancesheetis“totalassets.”VerticalAnalysisLincolnCompany

ComparativeBalanceSheet

Assets

Currentassets $550,000 48.3% $533,000 43.3%Long-terminvestments 95,000 8.3 177,500 14.4Property,plant,&equip.(net) 444,500 39.0 470,000 38.2Intangibleassets 50,000 4.4 50,000 4.1 Totalassets $1,139,500 100.0% $1,230,500 100.0%

LiabilitiesCurrentliabilities $210,000 18.4% $243,000 19.7%Long-termliabilities 100,000 8.8 200,000 16.3 Totalliabilities $310,000 27.2% $443,000 36.0%

Stockholders’EquityPreferredstock,6%,$100par $150,000 13.2% $150,000 12.2%Commonstock,$10par 500,000 43.9 500,000 40.6 Retainedearnings 179,500 15.7 137,500 11.2 Totalstockholders’equity $829,500 72.8% $787,500 64.0% Totalliab.&SE $1,139,500 100.0% $1,230,500 100.0%

December31,2006December31,2005Amount Percent Amount PercentVerticalAnalysis:Currentassets$550,000Totalassets $1,139,500=48.3%48.3%BalanceSheetLincolnCompany

ComparativeBalanceSheet

Assets

Currentassets $550,000 48.3% $533,000 43.3%Long-terminvestments 95,000 8.3 177,500 14.4Property,plant,&equip.(net) 444,500 39.0 470,000 38.2Intangibleassets 50,000 4.4 50,000 4.1 Totalassets $1,139,500 100.0% $1,230,500 100.0%

LiabilitiesCurrentliabilities $210,000 18.4% $243,000 19.7%Long-termliabilities 100,000 8.8 200,000 16.3 Totalliabilities $310,000 27.2% $443,000 36.0%

Stockholders’EquityPreferred6%stock,$100par $150,000 13.2% $150,000 12.2%Commonstock,$10par 500,000 43.9 500,000 40.6 Retainedearnings 179,500 15.7 137,500 11.2 Totalstockholders’equity $829,500 72.8% $787,500 64.0% Totalliab.&SE $1,139,500 100.0% $1,230,500 100.0%VerticalAnalysis:Currentassets$533,000Totalassets $1,230,500=43.3%43.3%

December31,2006December31,2005Amount Percent Amount PercentLincolnCompany

ComparativeBalanceSheet

Assets

Currentassets $550,000 48.3% $533,000 43.3%Long-terminvestments 95,000 8.3 177,500 14.4Property,plant,&equip.(net) 444,500 39.0 470,000 38.2Intangibleassets 50,000 4.4 50,000 4.1 Totalassets $1,139,500 100.0% $1,230,500 100.0%

LiabilitiesCurrentliabilities $210,000 18.4% $243,000 19.7%Long-termliabilities 100,000 8.8 200,000 16.3 Totalliabilities $310,000 27.2% $443,000 36.0%

Stockholders’EquityPreferred6%stock,$100par $150,000 13.2% $150,000 12.2%Commonstock,$10par 500,000 43.9 500,000 40.6 Retainedearnings 179,500 15.7 137,500 11.2 Totalstockholders’equity $829,500 72.8% $787,500 64.0% Totalliab.&SE $1,139,500 100.0% $1,230,500 100.0%

December31,2006December31,2005Amount Percent Amount PercentSales $1,530,500 102.2% $1,234,000 102.8% Salesreturns 32,500 2.2 34,000 2.8 Netsales $1,498,000 100.0% $1,200,000 100.0% Costofgoodssold 1,043,000 69.6 820,000 68.3Grossprofit $455,000 30.4% $380,000 31.7%Sellingexpenses $191,000 12.8% $147,000 12.3%Administrativeexpenses 104,000 6.9 97,400 8.1Totaloperatingexpenses $295,000 19.7% $244,400 20.4%Incomefromoperations $160,000 10.7 $135,600 11.3%Otherincome 8,500 0.6 11,000 0.9 $168,500 11.3% $146,600 12.2%Otherexpense 6,000 0.4 12,000 1.0Incomebeforeincometax $162,500 10.9% $134,600 11.2%Incometaxexpense 71,500 4.8 58,100 4.8Netincome $91,000 6.1% $76,500 6.4%

2006 2005 AmountPercentAmountPercentNetsalesis100.0%LincolnCompany

ComparativeIncomeStatement

FortheYearsEndedDecember31,2006and2005IncomeStatementLincolnCompany

ComparativeIncomeStatement

FortheYearsEndedDecember31,2006and2005Sales $1,530,500 102.2% $1,234,000 102.8% Salesreturns 32,500 2.2 34,000 2.8 Netsales $1,498,000 100.0% $1,200,000 100.0% Costofgoodssold 1,043,000 69.6 820,000 68.3Grossprofit $455,000 30.4% $380,000 31.7%Sellingexpenses $191,000 12.8% $147,000 12.3%Administrativeexpenses 104,000 6.9 97,400 8.1Totaloperatingexpenses $295,000 19.7% $244,400 20.4%Incomefromoperations $160,000 10.7 $135,600 11.3%Otherincome 8,500 0.6 11,000 0.9 $168,500 11.3% $146,600 12.2%Otherexpense 6,000 0.4 12,000 1.0Incomebeforeincometax $162,500 10.9% $134,600 11.2%Incometaxexpense 71,500 4.8 58,100 4.8Netincome $91,000 6.1% $76,500 6.4%

2006 2005 AmountPercentAmountPercentVerticalAnalysis:Sellingexpenses$191,000Netsales $1,498,000=12.8%12.8%Sales $1,530,500 102.2% $1,234,000 102.8% Salesreturns 32,500 2.2 34,000 2.8 Netsales $1,498,000 100.0% $1,200,000 100.0% Costofgoodssold 1,043,000 69.6 820,000 68.3Grossprofit $455,000 30.4% $380,000 31.7%Sellingexpenses $191,000 12.8% $147,000 12.3%Administrativeexpenses 104,000 6.9 97,400 8.1Totaloperatingexpenses $295,000 19.7% $244,400 20.4%Incomefromoperations $160,000 10.7 $135,600 11.3%Otherincome 8,500 0.6 11,000 0.9 $168,500 11.3% $146,600 12.2%Otherexpense 6,000 0.4 12,000 1.0Incomebeforeincometax $162,500 10.9% $134,600 11.2%Incometaxexpense 71,500 4.8 58,100 4.8Netincome $91,000 6.1% $76,500 6.4%

2006 2005 AmountPercentAmountPercentLincolnCompany

ComparativeIncomeStatement

FortheYearsEndedDecember31,2006and2005Sales $1,530,500 102.2% $1,234,000 102.8% Salesreturns 32,500 2.2 34,000 2.8 Netsales $1,498,000 100.0% $1,200,000 100.0% Costofgoodssold 1,043,000 69.6 820,000 68.3Grossprofit $455,000 30.4% $380,000 31.7%Sellingexpenses $191,000 12.8% $147,000 12.3%Administrativeexpenses 104,000 6.9 97,400 8.1Totaloperatingexpenses $295,000 19.7% $244,400 20.4%Incomefromoperations $160,000 10.7 $135,600 11.3%Otherincome 8,500 0.6 11,000 0.9 $168,500 11.3% $146,600 12.2%Otherexpense 6,000 0.4 12,000 1.0Incomebeforeincometax $162,500 10.9% $134,600 11.2%Incometaxexpense 71,500 4.8 58,100 4.8Netincome $91,000 6.1% $76,500 6.4%

2006 2005 AmountPercentAmountPercentLincolnCompany

ComparativeIncomeStatement

FortheYearsEndedDecember31,2006and2005CommonSizeStatementsVerticalanalysiswithbothdollarandpercentageamountsisalsousefulincomparingonecompanywithanotherorwithindustryaverages.Suchcomparisonsareeasiertomakewiththeuseofcommon-sizestatementsinwhichallitemsareexpressedinpercentages.Common-SizeIncomeStatementSolvencyAnalysisSolvency

istheabilityofabusinesstomeetitsfinancialobligations(debts)astheyaredue.Solvencyanalysisfocusesontheabilityofabusinesstopayorotherwisesatisfyitscurrent

and

noncurrentliabilities.Thisabilityisnormallyassessedbyexaminingbalancesheet

relationships.CurrentPositionAnalysisCurrentassets $550,000 $533,000Currentliabilities 210,000 243,000Workingcapital $340,000 $290,000Currentratio 2.6 2.2WorkingCapitalandCurrentRatioUse: Toindicatetheabilitytomeetcurrentlymaturingobligations. 2006 2005DividecurrentassetsbycurrentliabilitiesQuickRatioUse: Toindicateinstantdebt-payingability. 2006 2005Quickassets: Cash $90,500 $64,700 Marketablesecurities 75,000 60,000 Accountsreceivable(net) 115,000 120,000 Total $280,500 $244,700Currentliabilities $210,000 $243,000Quickratio 1.3 1.0CurrentPositionAnalysisAccountsReceivableTurnoverNetsalesonaccount $1,498,000 $1,200,000Accountsreceivable(net): Beginningofyear $120,000 $140,000 Endofyear 115,500 120,000 Total $235,000 $260,000 Average(Total÷2) $117,500 $130,000

2006 2005AccountsReceivableAnalysisNetsalesonaccountAverageaccountsreceivableUse: Toassesstheefficiencyincollectingreceivablesandinthemanagementofcredit.Netsalesonaccount $1,498,000 $1,200,000Accountsreceivable(net): Beginningofyear $120,000 $140,000 Endofyear 115,500 120,000 Total $235,000 $260,000 Average $117,500 $130,000Accountsreceivableturnover 12.7 9.2 2006 2005AccountsReceivableAnalysisAccountsReceivableTurnoverNumberofDays’SalesinReceivablesAccountsreceivable(net), endofyear $115,000 $120,000Netsalesonaccount $1,498,000 $1,200,000Averagedailysaleson account(sales÷365) $4,104 $3,288

2006 2005AccountsReceivableAnalysisAccountsreceivable,endofyearAveragedailysalesonaccountNumberofDays’SalesinReceivablesUse: Toassesstheefficiencyincollectingreceivablesandinthemanagementofcredit.Numberofdays’salesinreceivables28.036.5Accountsreceivable(net), endofyear $115,000 $120,000Netsalesonaccount $1,498,000 $1,200,000Averagedailysaleson account(sales÷365) $4,104 $3,288

2006 2005AccountsReceivableAnalysisInventoryTurnover 2006 2005Costofgoodssold $1,043,000 $820,000Inventories: Beginningofyear $283,000 $311,000 Endofyear 264,000 283,000 Total $547,000 $594,000 Average(Total÷2) $273,500 $297,000InventoryAnalysisCostofgoodssoldAverageinventoryInventoryturnover=InventoryTurnoverUse: Toassesstheefficiencyinthemanagementofinventory. 2006 2005Costofgoodssold $1,043,000 $820,000Inventories: Beginningofyear $283,000 $311,000 Endofyear 264,000 283,000 Total $547,000 $594,000 Average(Total÷2) $273,500 $297,000Inventoryturnover 3.8 2.8InventoryAnalysisNumberofDays’SalesinInventory 2006 2005Inventories,endofyear $264,000 $283,000Costofgoodssold $1,043,000 $820,000Averagedailycostof goodssold (COGS÷365) $2,858 $2,247InventoryAnalysisInventories,endofyearAveragedailycostofgoodssoldNumberofDays’SalesinInventory=NumberofDays’SalesinInventoryUse: Toassesstheefficiencyinthemanagementofinventory.Inventories,endofyear $264,000 $283,000Costofgoodssold $1,043,000 $820,000Averagedailycostof goodssold (COGS÷365) $2,858 $2,247Numberofdays’sales ininventory 92.4 125.9 InventoryAnalysis 2006 2005Use: Toindicatethemarginofsafetytolong-termcreditors. 2006 2005Fixedassets(net) $444,500 $470,000Long-termliabilities $100,000 $200,000Ratiooffixedassetsto long-termliabilities 4.4 2.4 RatioofFixedAssetstoLong-TermLiabilitiesLong-TermCreditorsRatioofLiabilitiestoStockholders’EquityUse: Toindicatethemarginofsafetytocreditors.Totalliabilities $310,000 $443,000Totalstockholders’equity $829,500 $787,500Ratioofliabilitiesto stockholders’equity 0.37 0.56 Long-TermCreditors 2006 2005NumberofTimesInterestChargesEarned 2006 2005Incomebeforeincometax $900,000 $800,000Addinterestexpense 300,000 250,000Amountavailableforinterest $1,200,000 $1,050,000Long-TermCreditorsIncomebeforeincometax+interestexpenseInterestexpenseNumberofTimesInterestChargesEarned=NumberofTimesInterestChargesEarnedUse: Toassesstherisktodebtholdersintermsofnumberoftimesinterestchargeswereearned. 2006 2005Incomebeforeincometax $900,000 $800,000Addinterestexpense 300,000 250,000Amountavailableforinterest $1,200,000 $1,050,000Numberoftimesearned 4.0 4.2 Long-TermCreditorsProfitabilityAnalysisProfitabilityistheabilityofanentitytoearnprofits.Thisabilitytoearnprofitsdependsontheeffectivenessandefficiencyofoperationsaswellasresourcesavailable.Profitabilityanalysis

focusesprimarilyontherelationshipbetweenoperatingresultsreportedintheincomestatement

andresourcesreportedinthebalancesheet.RatioofNetSalestoAssets 2006 2005Netsales $1,498,000 $1,200,000Totalassets: Beginningofyear $1,053,000 $1,010,000 Endofyear 1,044,500 1,053,000 Total $2,097,500 $2,063,000 Average(Total÷2) $1,048,750 $1,031,500

TheCommonStockholderExcludeslong-terminvestmentsTheCommonStockholderUse: Toassesstheeffectivenessoftheuseofassets.

Ratioofnetsalestoassets1.41.2RatioofNetSalestoAssets 2006 2005Netsales $1,498,000 $1,200,000Totalassets: Beginningofyear $1,053,000 $1,010,000 Endofyear 1,044,500 1,053,000 Total $2,097,500 $2,063,000 Average(Total÷2) $1,048,750 $1,031,500RateEarnedonTotalAssetsUse: Toassesstheprofitabilityoftheassets. 2006 2005

Rateearnedontotalassets8.2%7.3%Netincome $91,000 $76,500Plusinterestexpense 6,000 12,000 Total $97,000 $88,500Totalassets: Beginningofyear $1,230,500 $1,187,500 Endofyear 1,139,500 1,230,500 Total $2,370,000 $2,418,000 Average(Total÷2) $1,185,000 $1,209,000

TheCommonStockholderRateEarnedonStockholders’EquityUse: Toassesstheprofitabilityoftheinvestmentbystockholders.Rateearnedonstockholders’equity11.3%10.0%Netincome $91,000 $76,500Stockholders’equity: Beginningofyear $787,500 $750,000 Endofyear 829,500 787,500 Total $1,617,000 $1,537,500 Average(Total÷2) $808,500 $768,750 2006 2005TheCommonStockholderRateEarnedonCommonStockholders’Equity 2006 2005TheCommonStockholderNetincome $91,000 $76,500Lesspreferreddividends 9,000 9,000Remainder—commonstock $82,000 $67,500Commonstockholders’equity: Beginningofyear $637,