Six Measures of Solvency or Profitability The following data were taken from the
ID: 2467863 • 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) $1,603,600 Liabilities: Current liabilities $170,000 Mortgage note payable, 8%, issued 2005, due 2021 844,000 Total liabilities $1,014,000 Stockholders' equity: Preferred $2 stock, $100 par (no change during year) $1,521,000 Common stock, $10 par (no change during year) 1,521,000 Retained earnings: Balance, beginning of year $1,622,000 Net income 475,000 $2,097,000 Preferred dividends $30,420 Common dividends 38,580 69,000 Balance, end of year 2,028,000 Total stockholders' equity $5,070,000 Sales $16,762,000 Interest expense $67,520 Assuming that long-term investments totaled $3,042,000 throughout the year and that total assets were $5,780,000 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 %
Explanation / Answer
a. Ratio of fixed assets to long-term liabilities = Property plant and equipment / Mortgage note payable = 1,603,600 / 844,000 = 1.9
b. Ratio of liabilities to stockholders' equity = 1,014,000 / 5,070,000 = 0.2 or 20%
c. Ratio of sales to assets = 16,762,000 / 5,932,000 = 2.83
d. Rate earned on total assets = Net income / Total assets = 475,000 / 5,932,000 = 8%
e. Rate earned on stockholders' equity = 475,000 / 5,070,000 = 9.37%
f. Rate earned on common stockholders' equity = 475,000 / 3,549,000 = 13.38%