Question

As of December 31, 2014 assets were $20, liabilities were $12 and paid-in-capital was $1. There was no treasury stock or accumulated other comprehensive income at either the beginning or ending of 2015. During the year revenues were $40, gains (net of losses) were $1, paid-in-capital increased by $2 and the company paid out dividends of $4. At the end of the year, equity was $22 and total liabilities were $20.

10) What was the asset turnover for the year ended 12/31/15?

11) What was the return on assets for the year ended 12/31/15?

12) What was the equity multiplier for the year ended 12/31/15?

13) What was the return on equity for the year ended 12/31/15?

Answer 1

Answer to Question 10.

Asset Turnover Ratio = Sales / Average Total Assets

Total Assets, 2014 = $20

Total Assets = Total Liabilities + Total Equity

Total Assets, 2015 = $20 + $22 = $42

Average Total Assets = (20 + 42)/2 = $31

Asset Turnover Ratio = 40/31 = 1.29 times

Answer to Question 11.

Return on Assets = Net Income / Average Total Assets * 100

Return on Assets = 1/31 * 100

Return on Assets = 3.23%

Answer to Question 12.

Equity Multiplier = Total Assets / Total Stockholder's equity

Equity Multiplier = 42/ 22

Equity Multiplier = 1.91

Answer to Question 13.

Return on Equity = Net Income / Average Stockholder's equity

Total Assets = Total Liabilities + Total Stockholder's equity

$20 = $12 + Total Stockholder's equity, 2014

Total Stockholder's equity, 2014 = $8

Average Stockholder's equity = (8 + 22)/2 = $15

Return on Equity = 1/ 15 * 100

Return on Equity = 6.67%