Daly Company has the following information for 2008. Cost of goods sold $88 mill

Question

Daly Company has the following information for 2008.

Cost of goods sold

$88 million

Dividend per share

$0.20

Earnings before interest and taxes

$13 million

Income tax rate

35%

Interest expense (at average interest rate 10%)

$1 million

Inventory turnover ratio

5

No of shares

5 million

Price per share

$13

Weighted average cost of capital

12%

Find its (a) Earnings per share, (b) Interest coverage ratio, (c) Dividend payout ratio, (d) P-E ratio, and (e) Average inventory.

Cost of goods sold

$88 million

Dividend per share

$0.20

Earnings before interest and taxes

$13 million

Income tax rate

35%

Interest expense (at average interest rate 10%)

$1 million

Inventory turnover ratio

5

No of shares

5 million

Price per share

$13

Weighted average cost of capital

12%

Explanation / Answer

a) Net income = (13-1)*65% = $7.8 million

Earning per share = 7.8/5 = $1.56 per share

b) Interest coverage ratio = Earnings before interest and taxes/ Interest expense

= 13/1

Interest coverage ratio = 13 Times

c) Dividend payout ratio = 0.20*100/7.8 = 2.56%

d) PE ratio = 13/7.8 = 1.67 Times

e) Average inventory = 88/5 = 17.6 Million

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