Question

Six Measures of Solvency or Profitability

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

Property, plant, and equipment (net)						$2,412,700
Liabilities:
	Current liabilities			$211,000
	Note payable, 6%, due in 15 years			1,049,000
	Total liabilities					$1,260,000
Stockholders' equity:
	Preferred $4 stock, $100 par (no change during year)					$756,000
	Common stock, $10 par (no change during year)					756,000
Retained earnings:
	Balance, beginning of year	$806,000
	Net income	324,000		$1,130,000
	Preferred dividends	$30,240
	Common dividends	91,760		122,000
	Balance, end of year					1,008,000
Total stockholders' equity						$2,520,000
Sales						$17,690,400
Interest expense						$62,940

Assuming that total assets were $3,591,000 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

Please give positive ratings so I can keep answering. It would help me a lot. Please comment if you have any query. Thanks!

Gates Inc.
Statement of Earnings	Year End
Sales	17,690,400.00
Interest expense	62,940.00
Net Income	324,000.00
Preferred stock Dividend	30,240.00
Net Income - available for common stockholder	293,760.00
Statement of Financial Position
Assets	Year End
Property, plant, and equipment (net)	2,412,700.00
Liabilities
Current Liabilities	211,000.00
Long Term- Liabilities
Note Payable, 6%	1,049,000.00
Total Long Term- Liabilities	1,049,000.00
Total Liabilities	1,260,000.00
Stockholders' Equity
Preferred $ 4stock, $ 100 par	756,000.00
Common Stock, $ 10 par	756,000.00
Retained Earnings	1,008,000.00
Total Stockholders' Equity	2,520,000.00
Total Liabilities & Stockholders' Equity	3,780,000.00
	Year End	Year Beginning
Total Assets	3,780,000.00	3,591,000.00
Average Total Assets	3,685,500.00

Ans a- Ratio of fixed assets to long-term liabilities	Year End
Property, plant, and equipment / Long-term liabilities	2.30
Ans b- Ratio of liabilities to stockholders' equity
Total Liabilities/ Stockholders' equity	0.50
Ans c- Asset turnover
Sales Revenue/Average Total Assets	4.80
Ans d- Return on Total Assets
(Net Income+ Interest expense) / Average Total Assets	10.5%
Ans e- Return on stockholders’ equity
Net Income - available for common stockholder / Total stockholders’ equity	11.7%
Ans f- Return on Common stockholders’ equity
Net Income - available for common stockholder / (Common stock + Retained Earnings)	16.7%