Return on total assetsis= Net Income/Total Assets Total assets = common stock holders equity + outsiders liabilities Return on common stockholders equity= Net Income/Common Stockkholders'equity As the divider in first ratio is total Assets, which includes common stockholders' equity and outside liabilities, in the second ratio it is only common stockholders' equity. Hence the ratio is more in second case. Therefore return on total asset ratio is 7.6% and the Return on common stock holders' equity is 12.8%.
Work Step by Step
The difference between the two rates is due to outside liabilities.