Question

Seven metrics

The following data were taken from the financial statements of Woodwork Enterprises Inc. for the current fiscal year. Assuming that there are no intangible assets.

Property, plant, and equipment (net)						$ 5,000,000
Liabilities:
	Current liabilities			$ 400,000
	Mortgage note payable, 5%, ten-year note issued two years ago			3,600,000
	Total liabilities					$4,000,000
Stockholders' equity:
	Preferred $1 stock, $10 par (no change during year)					$1,000,000
	Common stock, $5 par (no change during year)					2,000,000
Retained earnings:
	Balance, beginning of year	$8,000,000
	Net income	500,000		$8,500,000
	Preferred dividends	$ 100,000
	Common dividends	100,000		(200,000)
	Balance, end of year					8,300,000
Total stockholders' equity						$11,300,000
Sales						$ 6,250,000
Interest expense						$ 180,000
Beginning-of-the-year amounts:
	Property, plant, and equipment (net)					$ 4,500,000
	Total assets					12,200,000
	Retained earnings					8,000,000

Determine the following: (a) debt ratio, (b) ratio of fixed assets to long-term liabilities, (c) ratio of liabilities to stockholders’ equity, (d) asset turnover, (e) return on total assets, (f) return on stockholders’ equity, and (g) return on common stockholders' equity. Round to two decimal places.

a.	Debt ratio	%
b.	Ratio of fixed assets to long-term liabilities	1.39
c.	Ratio of liabilities to stockholders’ equity	0.35
d.	Asset turnover
e.	Return on total assets	%
f.	Return on stockholders’ equity	%
g.	Return on common stockholders’ equity	%

Feedback

(a) Divide total liabilities by total assets. Use the accounting equation to find total assets i.e., Total Assets = Total liabilities + Total Stockholders’ Equity

(b) Divide property, plant and equipment (net) by long-term liabilities.

(c) Divide total liabilities by total stockholders’ equity.

(d) Divide net sales by average total assets, excluding long-term investments. Average Total Assets = (Beginning Total Assets + Ending Total Assets) ÷ 2
To find ending total assets, use the accounting equation and substitute ending liabilities + stockholders’ equity for the amount.

(e) Divide the sum of net income plus interest expense by average total assets. Average Total Assets = (Beginning Total Assets + Ending Total Assets) ÷ 2
To find ending total assets, use the accounting equation and substitute ending liabilities + stockholders’ equity for the amount.

(f) Divide net income by average stockholders’ equity. Average Total Stockholders’Equity = (Beginning Stockholders’Equity + Ending Stockholders’Equity) ÷ 2

(g) Divide net income minus preferred dividends by average common stockholders’ equity. Common stockholders’ equity = Common stock + Retained earnings
Average common stockholders’ equity = (Beginning common stockholders’ equity + Ending common stockholders’ equity) ÷ 2

Answer 1

Answer to Part a and b:

Answer to Part c and d:

Answer to Part e:

Answer to Part f:

Answer to Part g: