Question

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

Property, plant, and equipment (net)						$2,442,000
Liabilities:
	Current liabilities			$222,000
	Note payable, 6%, due in 15 years			1,110,000
	Total liabilities					$1,332,000
Stockholders' equity:
	Preferred $4 stock, $100 par (no change during year)					$1,332,000
	Common stock, $10 par (no change during year)					1,332,000
Retained earnings:
	Balance, beginning of year	$1,420,000
	Net income	549,000		$1,969,000
	Preferred dividends	$53,280
	Common dividends	139,720		193,000
	Balance, end of year					1,776,000
Total stockholders' equity						$4,440,000
Sales						$25,323,750
Interest expense						$66,600

Assuming that total assets were $5,483,000 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	2.2
	($2,442,000/$1,110,000)
b.	Ratio of liabilities to stockholders' equity	0.3
	($1,332,000/$4,440,000)
c.	Asset turnover
	(Net Sale/Avg. Total Assets)	4.5
	($25,323,750/$5,627,500)
	Avg. total assets	$5,627,500
	($5,483,000 + $5,772,000)/2
d.	Return on total assets	9.76%
	Net Income/Avg. total assets
	($549,000/$5,627,500)
e.	Return on stockholders’ equity	12.36%
	Net Income/Stockholders' equity
	($549,000/$4,440,000)
f.	Return on common stockholders' equity	15.95%
	(Net Income-Preferred dividends)/common stockholders' equity
	[($549,000 - $53,280)/($1,332,000 + $1,776,000)]