Six Measures of Solvency or Profitability The following data were taken from the financial statements of Olvideo Enterprises Inc. for the current fiscal year.
Property, plant, and equipment (net) $1,764,800
Liabilities: Current liabilities$220,000
Mortgage note payable, 8%, issued 2003, due 2019 1,103,000
Total liabilities $1,323,000
Stockholders’ equity:
Preferred $2 stock, $100 par (no change during year) $1,984,500
Common stock, $10 par (no change during year) 1,984,500
Retained earnings:
Balance, beginning of year $2,116,000
Net income 774,000 $2,890,000
Preferred dividends $39,690
Common dividends 204,310 244,000 Balance, end of year 2,646,000 Total stockholders’ equity $6,615,000 Net sales $22,245,950 Interest expense $88,240
Assuming that long-term investments totaled $3,969,000 throughout the year and that total assets were $7,541,000 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. Ratio of net sales to assets
d. Rate earned on total assets
e. Rate earned on stockholders’ equity
f. Rate earned on common stockholders’ equity
tio of fixed assets to long-term liabilities
Ratio of Fixed Assets to Long-Term Liabilities
= Fixes assets / Long term liabilities
=$1764800 / 1103000
= 1.328
b
. Ratio of liabilities to stockholders’ equity
Ratio of Liabilities to Stockholders’ Equity
= Total liabilities / Total stockholder’s equity
=$1,323,000 / 6615000
= 0.200
c
. Ratio of net sales to assets
= Net sales / Average total assets
=$22245950 / [($7541,000 + 7938000*) / 2 – $3969000]
= 5.9
*($1,323000 + 6615,000) = $7938000
d.
Rate earned on total assets
= (Net income + interest expense) / Average total assets
=($774,000 + 88240) / [($7541000 + 7938,000) / 2]
= 11.14%
e.
Rate earned on stockholders’ equity
= Net income / Average stockholder’s equity
$774,000 / 6350,000
= 12.19 %
[($1984500+1984500+2216000+6615000) / 2 = $6350000]
f.
Rate earned on common stockholders’ equity
= Net income – Preferred stock) / Average common stockholder’s equity
=($774000 – 39690) / $436550
= 16.82%
[($1984500 + 1984500) + ($2646000 + 2116000) / 2 = $4365500
