Question

14)       [The following information applies to the question displayed below.]

Wichita, Inc., had reported the following amounts on its financial statements prepared as of the end of the current accounting period:

Revenues	$	222,000
Expenses		173,200
Net income				$	48,800
Current assets	$	61,000
Long-term assets		183,000
Total assets				$	244,000
Current liabilities	$	42,000
Long-term liabilities		91,000
Total liabilities				$	133,000
Common stock	$	51,000
Retained earnings		60,000
Total equity				$	111,000
Total liabilities equity				$	244,000

14.1)      What is the company’s return-on-assets ratio?

   A)    22%        
   B)    45%
   C)    6%
   D)    12%

14.2)      What is the company’s return-on-equity ratio?

   A)    12%        
   B)    6%
   C)    27%
   D)    44%

14.3)      What is the company’s debt-to-assets ratio?

   A)    32%        
   B)    13%
   C)    26%
   D)    53%

Answer 1

14) 1) Return on assets ratio = [ Net Income / Total assets ] X 100 %

Return on assets ratio = [ $ 48,800 / $ 244,000 ] X 100 % = 20%

It is nearest to 22%, so if no other alternatives are given then alternative (A) 22% can be chosen.

14) 2) Return on equity ratio = [ Net income / Shareholder's equity ] X 100 %

Return on equity ratio = [ $ 48,800 / $ 111,000 ] X 100 % = 43.96 % or 44%

Alternative (D) 44% is the correct answer.

14) 3) Debt to assets ratio = [ Total liabilities / Total assets ] X 100 %

Debt to assets ratio = [ $ 133,000 / $ 244,000 ] X 100 % = 54.51 %

It is close to 53%. If no other alternatives are given then alternative (D) 53% can be chosen .