Six Measures of Solvency or Profitability The following data were taken from the
ID: 2462419 • Letter: S
Question
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) $1,327,700 Liabilities: Current liabilities $155,000 Mortgage note payable, 8%, issued 2005, due 2021 781,000 Total liabilities $936,000 Stockholders' equity: Preferred $2 stock, $100 par (no change during year) $936,000 Common stock, $10 par (no change during year) 936,000 Retained earnings: Balance, beginning of year $998,000 Net income 405,000 $1,403,000 Preferred dividends $18,720 Common dividends 136,280 155,000 Balance, end of year 1,248,000 Total stockholders' equity $3,120,000 Sales $9,247,200 Interest expense $62,480 Assuming that long-term investments totaled $2,028,000 throughout the year and that total assets were $3,853,000 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 sales to assets d. Rate earned on total assets % e. Rate earned on stockholders' equity % f. Rate earned on common stockholders' equity % Comment Expert Answer Anonymous Anonymous answered this 58 minutes later Was this answer helpful? 0 0 239 answers a)Fixed Assets to Long-term Liabilities Ratio = Fixed Assets / Long-term Liabilities =1,327,700/781,000=1.7 b) Ratio of liabilities to stockholder’s equity=Total Liabilities /Total Equity =936,000/3,120,000=0.25 c)Ratio of sales of assets=Sales/Avg assets =$9,247,200/(3,853,000+(1,327,700+2,028,000)/2] =$9,247,200/[3,853,000+3,355,700]/2 =$9,247,200/3,604,350 =2.57 d) Rate earned on total assets= Net income / Ave Total assets =405,000/3,604,350=0.1123 or 11.23% e) Rate earned on stockholder’s equity= Net income / Total Stock holder’s equity =405,000/3,120,000=0.1298 or 12.98% f) Rate earned on common stockholder’s equity= Net income / Common Stock holder’s equity =Net income/(Common Stock Equity + Retained earnings] =405,000/[936,000+1,248,000 =405,000/2,184,000 =0.1854 or 18.54%
Explanation / Answer
1)Ratio of fixed assets to long-term liabilities
=fIXED Asset/Long term liab=1327700/781000=0.66
2)Ratio of liabilities to stockholders' equity
=936000/3120000=.25
3)Ratio of net sales to assets
=sales/assets=$9,247,200/(3120000-936000)=9247200/2184000=4.23
4)Rate earned on total assets
=405,000/3,604,350=11.23%
5)Rate earned on stockholders' equity
Net income / Total Stock holder’s equity
=405,000/3,120,000=12.98%
6)Rate earned on common stockholders' equity
Net income/(Common Stock Equity + Retained earnings]
=405,000/[936,000+1,248,000 =405,000/2,184,000
=18.54%