Comparative financial statements for Weller Corporation, a merchandising company

Question

Comparative financial statements for Weller Corporation, a merchandising company, for the fiscal 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 bond payable was 10% the income tax rate was 40%, and the dividend per share of common stock was $1.00 last year and $0.65 this year. The market value of the company's common stock at the end of the year was $23. All of the company's sales are on account. Weller Corporation Comparative Balance Sheet (dollars in thousands) This Year Last Year Assets Current assets Cash Accounts receivable, net Inventory Prepaid expenses $ 1,260 $ 1,370 6,700 11,400 600 9,600 13,700 610 Total current assets 25,170 20,070 Property and equipment: Land Buildings and equipment, net 9,800 43,302 9,800 44,406 53,102 54,206 $78,272 $74,276 Total property and equipment Total assets Liabilities and Stockholders' Equity Current liabilities: Accounts payable Accrued liabilities $19,200 $ 18,700 840 250 980 0 Notes payable, short term Total current liabilities Long-term liabilities 20,180 19,790 9,900 29,690 Bonds payable 9,900 Total liabilities 30,080 Stockholders' equity: Common stock Additional paid-in capital 2,000 4,000 2,000 4,000 Total paid-in capital Retained earnings 6,000 42,192 6,000 38,586 44,586 $78,272 $74,276 Total stockholders' equity 48,192 Total liabilities and stockholders' equity

Explanation / Answer

Answer 1. Times Interest Earned Ratio = Earnings before interest expense & income Tax / Interest expense Times Interest Earned Ratio = 8000 / 990 = 8.08 Times Answer 2. Debt to Equity Ratio = Total Liabilities / Shareholders' Equity Debt to Equity Ratio = $30,080 / $48192 = 0.62 Answer 3. Equity Multiplier = Total Assets / Total Shareholders' Equity Equity Multiplier = 78272 / 48192 = 1.62

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