Question

The following data were taken from the financial statements of Gates Inc. for the current fiscal year. Property, plant, and equipment (net) $1,412,700 Liabilities: Current liabilities $165,000 Note payable, 6%, due in 15 years 831,000 Total liabilities $996,000 Stockholders' equity: Preferred $4 stock, $100 par (no change during year) $1,494,000 Common stock, $10 par (no change during year) 1,494,000 Retained earnings: Balance, beginning of year $1,594,000 Net income 601,000 $2,195,000 Preferred dividends $59,760 Common dividends 143,240 203,000 Balance, end of year 1,992,000 Total stockholders' equity $4,980,000 Sales $27,384,550 Interest expense $49,860 Assuming that total assets were $5,677,000 at the beginning of the current fiscal year, determine the following. When required, round to one decimal place.

Answer 1

a. Ratio of fixed assets to long-term liabilities = fixed assets / long term liabilities = $1,412,700 / $831,000 = 1.7

b. Ratio of liabilities to stockholders' equity = liabilities / equity = $996,000 / $4,980,000 = 0.2

c. Asset turnover = total revenue / average assets = $27,384,550 / [($5,976,000 + $5,677,000)/2] = 4.7

d. Return on total assets = (net income + interest expense) / average assets = ($601,000 + $49,860) / [($5,976,000 + $5,677,000)/2] = 11.2%

e. Return on stockholders’ equity = net income / average stockholders' equity = $601,000 / {[($1,594,000 + $1,494,000 + $1,494,000) + $4,980,000] / 2} = $601,000 / {($4,582,000 + $4,980,000) / 2} = $601,000 / $4,781,000 = 12.57%

f. Return on common stockholders' equity = (net income - preferred dividends) / average common stock = ($601,000 - $59,760) / $1,494,000 = 36.2%