E14-15 (Calculate rations to evaluate earnings performance.) The following finan

ID: 2438376 • Letter: E

Question

E14-15 (Calculate rations to evaluate earnings performance.)

The following financial information is available for Plummer Corporation.

2017 2016

Average common stockholders’ equity $1,200,000 900,000

Dividends paid to common stockholders 50,000 30,000

Dividends paid to preferred stockholders 20,000 20,000

Net Income 290,000 200,000

Market price of common stock 20 15

The weighted-average number of shares of common stock outstanding was 80,000 for 2016 and 100,000 for 2017.

Instructions:

Calculate earnings per share and return on common stockholders’ equity for 2017 and 2016.

Explanation / Answer

Answer:

2017

2016

Earnings per share

2.7

2.25

Return on equity

22.50%

20.00%

Working notes for the above answer is a sunder

Earning per share

=net income- preferred dividend / Average share outstanding

for 2017

=(290,000-20,000) /100,000

=270,000/100,000

=2.7

for 2018

=(200,000-20,000) /80,000

=180,000/80,000

=2.25

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return on equity

= Net income available to equity share holder/ Average common stockholders’ equity

for 2017

=290,000-20,000/1,200,000

=22.50%

For 2016

=200,000-20,000/900,000

=20%