Six Measures of Solvency or Profitability
The following data were taken from the financial statements of Gates Inc. for the current fiscal year.
|Property, plant, and equipment (net)||$998,400|
|Note payable, 6%, due in 15 years||624,000|
|Preferred $4 stock, $100 par (no change during year)||$1,125,000|
|Common stock, $10 par (no change during year)||1,125,000|
|Balance, beginning of year||$1,200,000|
|Balance, end of year||1,500,000|
|Total stockholders' equity||$3,750,000|
Assuming that total assets were $4,275,000 at the beginning of the current fiscal year, determine the following. When required, round to one decimal place.
|d. Return on total assets||%|
|e. Return on stockholders’ equity||%|
|f. Return on common stockholders' equity|
Calculate return on total assets:
Return on total assets = Net income / Average total assets
Return on total assets = $484,000 / ($4,275,000 + $4,500,000)
Return on total assets = $484,000 / $4,387,500
Return on total assets = 11.0%
Calculate return on stockholders' equity:
Return on stockholders' equity = Net income / Average stockholders' equity
Return on stockholders' equity = $484,000 / ($3,450,000 + $3,750,000)
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