Question

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

Property, plant, and equipment (net)						$969,800
Liabilities:
	Current liabilities			$148,000
	Note payable, 6%, due in 15 years			746,000
	Total liabilities					$894,000
Stockholders' equity:
	Preferred $4 stock, $100 par (no change during year)					$536,400
	Common stock, $10 par (no change during year)					536,400
Retained earnings:
	Balance, beginning of year	$572,000
	Net income	285,000		$857,000
	Preferred dividends	$21,456
	Common dividends	120,344		141,800
	Balance, end of year					715,200
Total stockholders' equity						$1,788,000
Sales						$16,736,000
Interest expense						$44,760

Assuming that total assets were $2,548,000 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 = Fixed assets / Long term liabilities = 969800 / 746000	1.3
b.	Ratio of liabilities to stockholders' equity = Liabilities / Stockholders' equity = 894000 / 1788000	0.5
c.	Ending total assets = Ending total liabilities + Ending stockholders' equity = 894000 + 1788000	2682000
	Average total assets = ( Beginning total assets + Ending total assets ) / 2 = ( 2548000 + 2682000 ) / 2	2615000
	Asset turnover = Sales / Average total assets = 16736000 / 2615000	6.4
d.	Return on total assets = Net income / Total assets = 285000 / 2682000	10.6%
e.	Beginning stockholders' equity = Preferred stock + Common stock + Beginning retained earnings = 536400 + 536400 + 572000	1644800
	Average stockholders' equity = ( Beginning stockholders' equity + Ending stockholders' equity ) / = ( 1644800 + 1788000 ) / 2	1716400
	Return on stockholders' equity = Net income / Average Stockholders' equity = 285000 / 1716400	16.6%

f.		Beginning	Ending
	Stockholders' equity	1644800	1788000
	(-) Preferred stock	536400	536400
	Common stockholders' equity	1108400	1251600

Average common stockholders' equity = ( Beginning common stockholders' equity + Ending common stockholders' equity ) / 2 = ( 1108400 + 1251600 ) / 2	1180000
Return on common stockholders' equity = ( Net income - Preferred dividends ) / Average common stockholders' equity = ( 285000 - 21456 ) / 1180000	22.3%