SIx Measures of Solvency or Profitablity The following data

SIx Measures of Solvency or Profitablity The following data were taken from the financlal statements of Gates Inc. for the current fiscal year Property, plant, and equipment (net) Llabllitles $2,076,800 Current llabllitles Note payable, 6%, due in 15 years Total llabllities $190,000 944,000 $1,134,000 Stockholders\' equity Preferred $2 stock, $100 par (no change during year) $680,400 Common stock, $10 par (no change during year) 680,400 Retalned earnings Balance, beginning of year Net Income Preferred divldends Common dividends Balance, end of year $726,000 358,000 $1,084,000 $13,608 163,192 176,800 Total stockholders\' equity Sales Interest expense 907,200 $2,268,000 $18,575,200 $56,640

Solution

Ans.(d) Return on total Assets = (Net income + Interest expense) / Average Total Assets = (358,000 + 56,640) / {(2,076,400 + 3,232,000)/2} = 414,640 / 2,654,200 = 0.15622 = 15.62% Ans.(e) Return on Shareholder\'s equity = (Net Income - Preffered dividends) / Average common Shareholder\'s equity = (358,000 - 13,608) / {(2,086,800+2,268,000)/2} = 344,392 / 2,177,400 = 0.158167 = 15.82% Ans.(f) Return on Commmon Stock Shareholder\'s euity = Net Income / Average Shareholder\'s Equity = 358,000 / {(2,086,800+2,268,000)/2} = 358,000 / 2,177,400 = 0.1644 = 16.44%