Question

The following data were taken from the financial statements of Gates Inc. for the current fiscal year.

Property, plant, and equipment (net)						$1,654,200
Liabilities:
	Current liabilities			$185,000
	Note payable, 6%, due in 15 years			919,000
	Total liabilities					$1,104,000
Stockholders' equity:
	Preferred $4 stock, $100 par (no change during year)					$1,104,000
	Common stock, $10 par (no change during year)					1,104,000
Retained earnings:
	Balance, beginning of year	$1,178,000
	Net income	407,000		$1,585,000
	Preferred dividends	$44,160
	Common dividends	68,840		113,000
	Balance, end of year					1,472,000
Total stockholders' equity						$3,680,000
Sales						$10,908,000
Interest expense						$55,140

Assuming that long-term investments totaled $2,392,000 throughout the year and that total assets were $4,545,000 at the beginning of the current fiscal year, determine the following. When required, round to one decimal place.

a. Ratio of fixed assets to long-term liabilities
b. Ratio of liabilities to stockholders' equity
c. Asset turnover
d. Return on total assets	%
e. Return on stockholders’ equity	%
f. Return on common stockholders' equity

Answer 1

a. Ratio of fixed assets to long-term liabilities
=Property, plant, and equipment (net)/Note payable
=$1,654,200/919,000
=1.8 times
b)Ratio of liabilities to stockholders' equity
= Total liabilities/Total stockholders' equity
=1,104,000/3,680,000
=0.3	times
c. Asset turnover
Average Assets = (beginning Assets + ending Assets)/2
= ( $4545000+4784000)/2
= $ 4664500
Assets Turnover Ratio = Sales / average Assets
= $10908000/4664500
=2.3 times
d. Return on total assets
Return On Assets = Net Income / Average Assets
= $407000/4664500
=8.7 %
e. Return on stockholders’ equity
Average Stockholders Equity = (beginning Stockholders Equity + ending Stockholders Equity)/2
= ( $3386000+3680000)/2
= $ 3533000
Return On Stockholders Equity = Net Income / Average Stockholders Equity
= $407000/3533000
=11.5 %
f. Return on common stockholders' equity
Average Common Stockholders Equity = (beginning Stockholders Equity + ending Stockholders Equity)/2
= ( $2282000+2576000)/2
= $ 2429000
Return On Common Stockholders Equity = Net Income- preferred dividend / Average Stockholders Equity
= ($407000-44160)/2429000
=14.9 %

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