Six measures of solvency or profitability Obj. 4, 5 The following data were taken from the financial statements of Gates Inc. for the current fiscal year.

Property, plant, and equipment (net) . . . . . . . . . . . . . . . . . . . . . . . $ 3,200,000 Liabilities:

Current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $1,000,000 Note payable, 6%, due in 15 years . . . . . . . . . . . . . . . . . . . . . . . 2,000,000 Total liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 3,000,000 Stockholders’ equity:

Preferred $10 stock, $100 par (no change during year) . . . . $ 1,000,000 Common stock, $10 par (no change during year) . . . . . . . . . 2,000,000 Retained earnings:

Balance, beginning of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $1,570,000 Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 930,000 Preferred dividends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (100,000)

Common dividends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (400,000)

Balance, end of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,000,000 Total stockholders’ equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 5,000,000 Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $18,900,000 Interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 120,000 Assuming that long-term investments totaled $3,000,000 throughout the year and that total assets were $7,000,000 at the beginning of the current fiscal year, determine the following:

(a) ratio of fixed assets to long-term liabilities,

(b) ratio of liabilities to stockholders’ equity,

(c) asset turnover,

(d) return on total assets,

(e) return on stockholders’ equity, and

(f) return on common stockholders’

equity. Round ratios and percentages to one decimal place as appropriate.

AppendixLO1