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 500,000 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 $0.75 last year and $0.40 this year. The market value of the company’s common stock at the end of the year was $29. 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 500,000 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 $0.75 last year and $0.40 this year. The market value of the company’s common stock at the end of the year was $29. All of the company’s sales are on account.

Explanation / Answer

1)Times interest earned ratio= EBIT(net operating income) /Interest expense

                                                   = 12800 /830

                                                   = 15.4 Times

2)Debt to equity ratio =Total liabiliites /Total shareholders equity         

                                       = 28570 /49574

                                       = .58 : 1

3)Equity multiplier = Total asset /Total shareholders equity     

                                = 78144 /49574

                               = 1.58

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