Flint Company manufactures backpacks. During 2017, Flint issued bonds at 10% int
ID: 2581131 • Letter: F
Question
Flint Company manufactures backpacks. During 2017, Flint issued bonds at 10% interest and used the cash proceeds to purchase treasury stock. The following financial information is available for Flint Company for the years 2017 and 2016.
2017
2016
Sales revenue
Net income
Interest expense
Tax expense
Dividends paid on common stock
Dividends paid on preferred stock
Total assets (year-end)
Average total assets
Total liabilities (year-end)
Avg. total common stockholders’ equity
(a)
Use the information above to calculate the following ratios for both years: (Round answers to 1 decimal place, e.g. 12.5% or 12.5.)
2017
2016
(1)
Return on assets
(2)
Return on common stockholders’ equity
(3)
Payout ratio
(4)
Debt to assets ratio
(5)
Times interest earned
Your answer is partially correct. Try again.Explanation / Answer
Solution:
1)
Return on Assets
2017
2016
Net Operating Profit after tax
5980000
(4480,000 + 1500,000)
5420000
(5000,000 + 420,000)
Average Total Assets
47062500
53289000
Return on Assets = NOPAT / Avg Total Assets x 100
12.71%
10.17%
2)
Return on Common Stockholders' Equity
Net Income
4,480,000
5,000,000
Average Total Common Stockholders' Equity
28,200,000
42,300,000
Return on Common Stockholders' Equity = Net Income / Avg Common Stockholders equity x 100
15.89%
11.82%
3)
Payout ratio
Dividends paid on common stock
2670000
3078000
Net Income available to common stock holders after paying the dividend to preferred stockholders
3580000
4100000
Payout Ratio = Dividend Paid on Common Stock / Income available to common stockholder's
74.58%
75.07%
4)
Debt to assets ratio
Total Liabilities
18000000
9000000
Total Assets
29000000
33750000
Debt to Assets Ratio = Total Liabilities / Total Assets
62.07%
26.67%
5)
Times interest earned
Income Before Interest and Taxes
7320000
(4480,000 + 1500,000 + 1340,000)
6920000
((5000,000 + 420,000 + 1500,000)
Interest Expenses
1500000
420000
Times interest earned = Income before interest and taxes / Interst Expense
4.88
16.476
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1)
Return on Assets
2017
2016
Net Operating Profit after tax
5980000
(4480,000 + 1500,000)
5420000
(5000,000 + 420,000)
Average Total Assets
47062500
53289000
Return on Assets = NOPAT / Avg Total Assets x 100
12.71%
10.17%
2)
Return on Common Stockholders' Equity
Net Income
4,480,000
5,000,000
Average Total Common Stockholders' Equity
28,200,000
42,300,000
Return on Common Stockholders' Equity = Net Income / Avg Common Stockholders equity x 100
15.89%
11.82%
3)
Payout ratio
Dividends paid on common stock
2670000
3078000
Net Income available to common stock holders after paying the dividend to preferred stockholders
3580000
4100000
Payout Ratio = Dividend Paid on Common Stock / Income available to common stockholder's
74.58%
75.07%
4)
Debt to assets ratio
Total Liabilities
18000000
9000000
Total Assets
29000000
33750000
Debt to Assets Ratio = Total Liabilities / Total Assets
62.07%
26.67%
5)
Times interest earned
Income Before Interest and Taxes
7320000
(4480,000 + 1500,000 + 1340,000)
6920000
((5000,000 + 420,000 + 1500,000)
Interest Expenses
1500000
420000
Times interest earned = Income before interest and taxes / Interst Expense
4.88
16.476
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