Comparative financial statements for Weller Corporation, a merchandising company

Question

Comparative financial statements for Weller Corporation, a merchandising company, for the year ending December 31 appear below. The company did not issue any new common stock during the year. A total of 600,000 shares of common stock were outstanding. The interest rate on the bonds, which were sold at their face value, was 10%. The income tax rate was 40% and the dividend per share of common stock was $0.40 this year. The market value of the company’s common stock at the end of the year was $26. All of the company’s sales are on account.

Comparative financial statements for Weller Corporation, a merchandising company, for the year ending December 31 appear below. The company did not issue any new common stock during the year. A total of 600,000 shares of common stock were outstanding. The interest rate on the bonds, which were sold at their face value, was 10%. The income tax rate was 40% and the dividend per share of common stock was $0.40 this year. The market value of the company’s common stock at the end of the year was $26. All of the company’s sales are on account.

Explanation / Answer

1.Times interest earned ratio = earnings before interest expense and income taxes / interest expense

=>$13,600 / 960.

=>14.2 times (rounded to two decimals).

2.Debt to equity ratio

=>total liabilities / stock holder's equity.

=>29,650 / 51,568.

=>0.57...(rounded to 2 decimals).

3.equity multiplier = average total assets / average stockholder's equity

here,

average total assets = (81,218 + 73,694) / 2 =>77,456.

average stockholders equity = (51,568 + 44,224) / 2

=>47,896.

equity multiplier = 77,456 / 47,896

=>1.62

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