Question

I need answers and explanations ASAP please and thanks. Six Measures of Solvency or Profitability

The following data were taken from the financial statements of Gates Inc. for the current fiscal year.

Property, plant, and equipment (net)						$2,182,400
Liabilities:
	Current liabilities			$199,000
	Note payable, 6%, due in 15 years			992,000
	Total liabilities					$1,191,000
Stockholders' equity:
	Preferred $2 stock, $100 par (no change during year)					$1,191,000
	Common stock, $10 par (no change during year)					1,191,000
Retained earnings:
	Balance, beginning of year	$1,270,000
	Net income	463,000		$1,733,000
	Preferred dividends	$23,820
	Common dividends	121,180		145,000
	Balance, end of year					1,588,000
Total stockholders' equity						$3,970,000
Sales						$31,198,400
Interest expense						$59,520

Assuming that total assets were $4,903,000 at the beginning of the current fiscal year, determine the following. When required, round to one decimal place.

a. Ratio of fixed assets to long-term liabilities	%
b. Ratio of liabilities to stockholders' equity	%
c. Asset turnover	%
d. Return on total assets	%
e. Return on stockholders’ equity	%
f. Return on common stockholders' equity	%

Answer 1

a. Ratio of fixed assets to long-term liabilities = fixed assets / long-term liabilities

= 2182400/992000 = 220%

b. Ratio of liabilities to stockholders' equity = Total liabilities / stockholders' equity

= 1191000 / 3970000 = 30%

c. Asset turnover = Net Sales / Average Total Asset

= 31198400 / [(5161000+4903000)/2] = 6.2%

d. Return on total assets = Net income for the year/Total assets = 463000/5161000 = 8.97%

e. Return on stockholders’ equity = Net income /Total stockholders’ equity = 463000/3970000 = 11.66%

f. Return on common stockholders' equity = Net income / Commonstockholders’ equity = 463000/1191000 *100 = 38.87%