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.

Answer 1

a.	Debt Ratio :-
a.	Total liabilities				$   4,000,000
b.	Total assets		11,300,000+4,000,000		$ 15,300,000
	Ratio (a/b)				0.26
b.	Ratio of fixed assets to long term liabilities:-
a.	Fixed Assets				$   5,000,000
b.	Long-term liabilities				$   3,600,000
	Ratio (a/b)				1.39	times
c	Ratio of liabilities to stockholders' equity:-
a.	Total liabilities				$   4,000,000
b.	Stockholders' equity				$ 11,300,000
	Ratio (a/b)				0.35	times
d	Asset turnover:-
a.	Net Sales				$   6,250,000
b.	Average Total assets
	Closing = 11,300,000 + 4,000,000 = $15,300,000
	opening + closing		12,200,000 + 15,300,000	=	$ 13,750,000
	2		2
	Ratio (a/b)				0.45	times
e	Return on Total Assets:-
a.	Net Income				$      500,000
b.	Interest Expense				$      180,000
c	Net income + Interest Expense				$      680,000
b.	Average Total assets
	opening + closing		12,200,000 + 15,300,000	=	$ 13,750,000
	2		2
	Ratio (a/b *100)				4.95%
f	Return on stockholders' equity:-
a.	Net income				$          500,000
b.	Average Total stockholders' equity
	Opening Stockholders' equity = 1,000,000+2,000,000+8,000,000	=	11,000,000
	Closing Stockholders' equity = 1,000,000+2,000,000+8,300,000	=	11,300,000
	opening + closing		11,000,000+11,300,000	=	$    11,150,000
	2		2
	Ratio (a/b *100)				4.48%
g	Rate earned on common stockholders' equity:-
a.	Net income - Preferred Dividends		500,000-100,000		$          400,000
b.	Average common stockholders' equity
	Common Stockholders' equity= Total Stockholders' equity -Preferred stock
	Opening Common Stockholders' equity = 11,000,000-1,000,000	=	10,000,000
	Closing Common Stockholders' equity = 11,300,000-1,000,000	=	10,300,000
	opening + closing		10,000,000+10,300,000	=	$    10,150,000
	2		2
	Ratio (a/b *100)				3.94%

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