The following data were taken from the financial statements of Gates Inc. for th

Question

The following data were taken from the financial statements of Gates Inc. for the current fiscal year. Property, plant, and equipment (net) Liabilities $1,641,200 Current liabilities Note payable, 6%, due in 15 years Total liabilities $148,000 746,000 $894,000 Stockholders' equity Preferred $2 stock, $100 par (no change during year) Common stock, $10 par (no change during year) $1,341,000 1,341,000 Retained earnings Balance, beginning of year $1,430,000 515,000 $1,945,000 $26,820 130,180 Net income Preferred dividends Common dividends 157,000 1,788,000 $4,470,000 $27,719,000 $44,760 Balance, end of year Total stockholders' equity Sales Interest expense Assuming that total assets were $5,096,000 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 Check My Work 1 more Check My Work uses remaining

Explanation / Answer

a.

Ratio of fixed asset to long term liability = Fixed asset/long term liability

                                                                          = 1641200/7446000

                                                                           = 2.2

b.

Ratio of liability to stockholders equity = 894000/ 4470000

                                                                        = 0.2

c.

Asset turnover = net sales/total asset

First we need to find current asset, we only have long term asset

Current asset = (Liability + equity) – fixed asset

                             = (894000 + 4470000) – 1641200

                              = 3722800

Total asset = 3722800 + 1641200 = 5364000

Asset turnover ratio is the ratio of a company's sales to its assets. It is an efficiency ratio which tells how successfully the company is using its assets to generate revenue.

Assess turnover ratio = Net sales/Average asset

Average asset is calculated by adding beginning asset and ending asset and dividing it by 2

Let's put the values in the formula

Asset turnover ratio = [27719000/ {(5096000 + 5364000)/2}]

                                           = [27719000/ {10460000/ 2}]

                                           = [27719000/ 5230000]

                                           = 5.3

Asset turnover ratio is 5.3

d.

Return on assets is the ratio of annual net income to average total assets of a business during a financial year. It measures efficiency of the business in using its assets to generate net income. It is a profitability ratio.

ROA = Net Income/ Average asset

So first we need to calculate average asset

Average asset = (Beginning asset + ending asset)/2

Average asset = (5096000 + 5364000)/ 2

Average asset = 10460000/ 2

Average asset = 5230000

Lets put all the values in the formula to find ROA

ROA = 515000/ 5230000

ROA = 0.0985

e.

Return on equity or return on capital is the ratio of net income of a business during a year to its stockholders' equity during that year. It is a measure of profitability of stockholders' investments. It shows net income as percentage of shareholder equity.

ROE = Annual net income/ average stock holders’ equity

           = 515000/ 4470000

           = 0.1152

f.

ROE = Annual net income/ common stock

           = 515000/ 1341000

           = 0.384

--------------------------------------------------------------------------------------------------------------------------

Feel free to comment if you need further assistance J

Pls rate this answer if you found it useful.

Related Questions

Navigate

• Browse (All)
• Browse T
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.