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 $27. All of the company’s sales are on account.

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 $27. All of the company’s sales are on account.

Explanation / Answer

1.TIMES INTEREST EARNED RATIO=EARNING BEFORE INTEREST AND TAX / INTEREST ON BONDS AND OTHER CONTRACTUAL DEBTS=$16,600/$810=20.5

2.DEBT TO EQUITY RATIO=TOTAL LIABILITIES/SHAREHOLDER'S EQUITY=$29,640/$51,688=0.57

3.EQUITY MULTIPLIER=TOTAL ASSETS/SHAREHOLDER'S EQUITY=$81,328/$51,688=1.57

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