The following data were taken from the financial statements of Heston Enterprise

Question

The following data were taken from the financial statements of Heston Enterprises Inc. for the current fiscal year. Assuming that long-term investments totaled $2,100,000 throughout the year and that total assets were $4,000,000 at the beginning of the year determine the following: (a)ratio of fixed assets to long-term liabilities, (b)ratio of liabilities to stockholders' equity, (c)ratio sales to assets, (d)rate earned on assets,(e)rate earned on stockholders' equity, and (f)rate earned on common stock holders' equity. Round to one decimal place.

Explanation / Answer

(a) Ratio of Fixed Assets to Long-term Liabilities: Fixed Assets = $1,600,000 Long-term Liabilities = $1,000,000 Ratio of Fixed Assets to Long-term Liabilities = [Fixed Assets / Long-term Liabilities] Ratio of Fixed Assets to Long-term Liabilities = [$1,600,000 / $1,000,000] Ratio of Fixed Assets to Long-term Liabilities = 1.60 (b) Ratio of Liabilities to Stockholder's Equity: Total Liabilities = $1,200,000 Total Stockholder's Equity = $3,000,000 Ratio of Liabilities to Stockholder's Equity = [$1,200,000 / $3,000,000] Ratio of Liabilities to Stockholder's Equity = 0.4 (c) Ratio of Net Sales to Assets: Net Sales = $10,000,000 Assets = $$2,000,000 Net Sales to Assets = [$10,000,000 / $2,000,000] Net Sales to Assets = 5.00 (d) Rate Earned on Total Assets: Net Income = $400,000 Interest expenses = $100,000 Average Total Assets = $4,100,000 Rate earned on Total Assets = [(Net Income + Interest expenses) / Average Total Assets] Rate earned on Total Assets = [($400,000 + $100,000) / $4,100,000] Rate eanred on Total Assets = [$500,000 / $4,100,000] Rate earned on Total Assets = 0.1219 (or) 12.2% (e) Rate earned on Stockholder's Equity: Net Income = $400,000 Average Stockholder's Equtiy = $2,900,000 Rate earned on Stockholder's Equity = [$400,000 / $2,900,000] Rate earned on Stockholder's Equity = 13.8% (f) Rate earne don Common Stockholder's Equity: Net Income = $400,000 Preferred Dividend = $100,000 Average Common Stockholder's Equity = $1,900,000 Rate earned on Common Stockholder's Equity = [(Net Income - Preferred Dividends) / Average Common Stockholder's Equity] Rate earned common Stockholder's Equity [($400.000 - $100,000) / $1,900,000] Rate earned on common Stockholder's Equity = 15.8%

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