The following data were taken from the financial statements of Heston Enterprise

Question

The following data were taken from the financial statements of Heston Enterprises Inc. for the current fiscal year. Assume that long-term investments totaled $2,100,000 throughout the year and that total assets were $4,000,000 at the beginning of the year.

Property, plant, and equipment (net).................................$1,600,000
Liabilities:
Current Liabilities: $200,000
Mortgage note payable, 10% issued 1999, due 2015 $1,00,000
Total liabilities...............................................................$1,200,000

Stockholder's equity:
Preferred $10 stock 100 par (no change during year) $1,000,000
Common Stock, $10 par (no change during year) $1,000,000

Retained earnings:
Balance, beginning of the year...............................$800,000
Ne Income.......................................................$400,000 $1,200,000
Preferred dividends............................................$100,000
common dividends..............................................$100,000 $200,000
Balance, end of year............................................................$1,000,000
Total Stockholdes' equity.......................................................$300,000
Net Sales...........................................................................$10,000,000
Interest Expense...........................................................$100,000


Determine the following: (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, and (f) rate earned on common stockholders' equity. 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: %

Explanation / Answer

a. Ratio of fixed assets to long-term liabilities: Ratio of fixed assets to long-term liabilities = Total fixed assets / long term liabilities = 1,600,000 / 1,000,000 = 1.60 b. Ratio of liabilities to stockholders' equity : Ratio of liabilities to stockholders' equity = Total debt / Total equity = 1,000,000 / 300,000 = 3.33 c. Ratio of net sales to assets: Ratio of net sales to assets = Sales / Total assets = $10,000,000 / 4,000,000 = 2.5 d. Return on assets: Return on assets = Net income / Total assets = 400,000 / 4,000,000 = 0.10 or 10% e. Rate earned on stockholders' equity: Rate earned on stockholders' equity = Net income / Total equity = 400,000 / 300,000 = 1.33 or133% f. Rate earned on common stockholders' equity: Rate earned on common stockholders' equity = Net income / Common stockholder's equity = 400,000 / 1,000,000 = 0.4 or 40%

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