Note: The common shares are trading in the stock market for $15 per share.
Refer to the financial statements of Flathead Lake Manufacturing Company. The firm's return on equity ratio for 2015 is _________. (Please keep in mind that when a ratio involves both income statement and balance sheet numbers, the balance sheet numbers for the beginning and end of the year must be averaged.)
A. 6.5% | B. 26.5% | C. 33.4% | D. 38%
Flathead Lake Manufacturing Income Statement 2015
Sales $9,300,000
Cost of Goods Sold $5,750,000
Depreciation Expense $550,000
Gross Profit $3,000,000
Selling and Administrative Expenses $2,200,000
EBIT $800,000
Interest Expense $200,000
Income before Tax $600,000
Taxes $375,000
Net Income $225,000
Flathead Lake Manufacturing Comparative Balance Sheets 2015 2014
Cash $50,000 $40,000
Accounts Receivable $570,000 $600,000
Inventory $530,000 $460,000
Total Current Assets $1,150,000 $1,100,000
Fixed Assets $2,050,000 $1,400,000
Total Assets $3,200,000 $2,500,000
Accounts Payable $320,000
Bank Loans $300,000
Total Current Liabilities $480,000
Long-term Bonds $400,000
Total Liabilities $800,000
Common Stock (200,000 shares) $700,000
Retained Earnings $1,500,000
Total Equity $1,000,000
Total Liabilities and Equity $2,300,000
