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
c.	Ratio of liabilities to stockholders’ equity
d.	Asset turnover
e.	Return on total assets	%
f.	Return on stockholders’ equity	%
g.	Return on common stockholders’ equity	%

Answer 1

Answer of Part a:

Ending Total Assets = Total Liabilities + Stockholders Equity
Ending Total Assets = $4,000,000 + $11,300,000
Ending Total Assets = $15,300,000

Debt Ratio = Total Liabilities / Total Assets
Debt Ratio = $4,000,000 / $15,300,000
Debt Ratio = 0.26

Answer of Part b:

Ratio of Fixed Assets to Long term Liabilities = Fixed Assets / Long term Liabilities
Ratio of Fixed Assets to Long term Liabilities = $5,000,000 / $3,600,000
Ratio of Fixed Assets to Long term Liabilities = 1.39

Answer of Part C:

Ratio of Liabilities to Stockholders Equity = Total Liabilities / Stockholders Equity
Ratio of Liabilities to Stockholders Equity = $4,000,000 / $11,300,000
Ratio of Liabilities to Stockholders Equity = 0.35

Answer of Part d:

Ending Total Assets = Total Liabilities + Stockholders Equity
Ending Total Assets = $4,000,000 + $11,300,000
Ending Total Assets = $15,300,000

Average Total Assets = (Beginning Total Assets + Ending Total Assets) /2
Average Total Assets = ($12,200,000 + $15,300,000) /2
Average Total Assets = $13,750,000

Asset Turnover = Sales / Average Total Assets
Asset Turnover = $6,250,000 / $13,750,000
Asset Turnover = 0.45