Question

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

Property, plant, and equipment (net)						$1,598,400
Liabilities:
	Current liabilities			$201,000
	Note payable, 6%, due in 15 years			999,000
	Total liabilities					$1,200,000
Stockholders' equity:
	Preferred $4 stock, $100 par (no change during year)					$1,800,000
	Common stock, $10 par (no change during year)					1,800,000
Retained earnings:
	Balance, beginning of year	$1,920,000
	Net income	674,000		$2,594,000
	Preferred dividends	$72,000
	Common dividends	122,000		194,000
	Balance, end of year					2,400,000
Total stockholders' equity						$6,000,000
Sales						$37,206,000
Interest expense						$59,940

Assuming that total assets were $6,840,000 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

Answer of Part a:

Ratio of Fixed Assets to Long term Liabilities = Fixed Assets / Long term Liabilities
Ratio of Fixed to Long term Liabilities = $1,598,400 / $999,000
Ratio of Fixed to Long term Liabilities = 1.6

Answer of Part b:

Ratio of Liabilities to stockholder’s equity = Total Liabilities / Stockholders Equity
Ratio of Liabilities to Stockholders Equity = $1,200,000 / $6,000,000
Ratio of Liabilities to Stockholders Equity = 0.2

Answer of Part c:

Ending Total Assets = Liabilities + Stockholders Equity
Ending Total Assets = $1,200,000 + $6,000,000
Ending Total Assets = $7,200,000

Average Total Assets = (Beginning Total Assets + Ending Total Assets) / 2
Average Total Assets = ($6,840,000 + $7,200,000) / 2
Average Total Assets = $7,020,000

Asset Turnover = Sales / Average Total Assets
Asset Turnover = $37,206,000 / $7,020,000
Asset Turnover = 5.3

Answer of Part d:

Return on Total Assets = Net Income / Average Total Assets
Return on Total Assets = $674,000 / $7,020,000
Return on Total Assets = 9.60%