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	____26.14______%
b.	Ratio of fixed assets to long-term liabilities	____1.39_______
c.	Ratio of liabilities to stockholders’ equity	____0.35_______
d.	Asset turnover	___________
e.	Return on total assets	___________ %
f.	Return on stockholders’ equity	____________ %
g.	Return on common stockholders’ equity	____________ %

Answer 1

d.	Asset turnover =	Net Sales /Average Total Assets
	=	$ 6,250,000/($15,300,000 + $12,200,000)/2
	=	0.45
e.	Return on total assets =	Net Income /Average Total Assets
	=	$500,000 /($15,300,000 + $12,200,000)/2
	=	3.64%
f.	Return on stockholders’ equity =	Net Income /Average stockholders' equity
	=	$500,000 /($11,300,000 + $11,000,000)/2
	=	4.48%
g.	Return on common stockholders’ equity =	Net Income /Average Common stockholders' equity
	=	$500,000 /$2,000,000
	=	25.00%