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) A leverage ratio that measures the margin of safety of long-term creditors, calculated as the net fixed assets divided by the long-term liabilities.ratio of fixed assets to long-term liabilities, (c) A comprehensive leverage ratio that measures the relationship of the claims of creditors to stockholders' equity.ratio of liabilities to stockholders’ equity, (d) Ratio that measures how effectively a company uses its assets, computed as net sales divided by average total assets (excluding long-term investments).asset turnover, (e) A measure of the profitability of assets, without regard to the equity of creditors and stockholders in the assets.return on total assets, (f) A measure of profitability computed by dividing net income by average total stockholders' equity.return on stockholders’ equity, and (g) A measure of profitability computed by dividing net income less preferred dividends by average common stockholders' equity.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

• All working forms part of the answer
• Working for Ending Total Asset Balance

Working #1
A	Total Stockholder' Equity	$     11,300,000.00
B	Total Liabilities	$        4,000,000.00
C = A + B	Total Assets balance at the end	$     15,300,000.00

• All the answers

Working	Debt Ratio
A	Total Liabilities	$        4,000,000.00
B	Total Assets balance	$     15,300,000.00
C = A/B	Debt Ratio	26.14%
Working	Ratio of Fixed Assets to Long Term Liabilities
A	Property, plant, and equipment (net)	$        5,000,000.00
B	Mortgage note payable, 5%, ten-year note issued two years ago	$        3,600,000.00
C = A/B	Ratio of Fixed Assets to Long Term Liabilities	1.39
Working	Ratio of liabilities to Stockholder's Equity
A	Total Liabilities	$        4,000,000.00
B	Total Stockholder's Equity	$     11,300,000.00
C = A/B	Ratio of liabilities to Stockholder's Equity	0.35
Working	Asset Turnover
A	Sales	$        6,250,000.00
B	Beginning Balance of Total Assets	$     12,200,000.00
C	Ending Balance of Total Assets (see working #1)	$     15,300,000.00
D = (B+C)/2	Average Total Assets	$     13,750,000.00
E= A/D	Asset Turnover	0.45
Working	Return on Total Assets
A	Net income	$           500,000.00
B	Interest expense	$           180,000.00
C = A+B	Net Income before interest (or EBIT)	$           680,000.00
D	Total Asset balance (Working #1)	$     15,300,000.00
E = C/D	Return on Total Assets	4.44%
Working	Return on Stockholder's Equity
A	Net income	$           500,000.00
B	Total Stockholder's Equity	$     11,300,000.00
C = A/B	Return on Stockholder's Equity	4.42%
Working	Return on Common Stockholder's Equity
A	Net income	$           500,000.00
B	Preferred dividends	$           100,000.00
C = A-B	Net Income for Common Stock	$           400,000.00
D	Common Stockholder Equity balance	$        2,000,000.00
E = C/D	Return on Common Stockholder's Equity	20.00%