Modern Building Supply sells various building materials to retail outlets. The c

Question

Modern Building Supply sells various building materials to retail outlets. The company has just approached Linden State Bank requesting a $300,000 loan to strengthen the Cash account and to pay certain pressing short-term obligations. The company’s financial statements for the most recent two years follow:

During the past year, the company has expanded the number of lines that it carries in order to stimulate sales and increase profits. It has also moved aggressively to acquire new customers. Sales terms are 2/10, n/30. All sales are on account.

       Assume that the following ratios are typical of companies in the building supply industry:

Assume that you have just inherited several hundred shares of Modern Building Supply stock. Not being acquainted with the company, you decide to do some analytical work before making a decision about whether to retain or sell the stock you have inherited

Modern Building Supply sells various building materials to retail outlets. The company has just approached Linden State Bank requesting a $300,000 loan to strengthen the Cash account and to pay certain pressing short-term obligations. The company’s financial statements for the most recent two years follow:

Modern Building Supply Comparative Balance Sheet his Year Last Year Assets Current assets Cash Marketable securities Accounts receivable, net Inventory Prepaid expenses $ 68,000 $148,000 17,000 292,000 600,000 22,000 472,000 935,000 15,000 Total current assets Plant and equipment, net 1.490,000 1.079.000 1,651,076 1,516,948 Total assets $3,141,076 $2,595,948 Liabilities and Stockholders' Equity Liabilities Current liabilities Bonds payable, 9% $ 806,000 $ 438,000 609.000 609.000 Total liabilities 1.415,000 .047.000 Stockholders' equity Preferred stock, $25 par, 7% Common stock, $10 par Retained earnings 297,500 518,000 910,576 297,500 518,000 733,448 Total stockholders' equity 1,726,076 1,548,948 Total liabilities and stockholder's equity $3,141,076 $2,595,948

Explanation / Answer

Solution:

a. This Year Last year Earnings per share = Earnings available for equity shareholder's / Number of common stock outstanding Earnings available for equity shareholder's 285,908 209,608 Number of common stock outstanding 51,800 51,800 Earning oer share                           5.52                           4.05 b. This Year Last year Dividend Yield Ratio = Dividend per share / Current Price per share Dividend per share 2.10 1.20 Current price per share 38.09 31.18 Dividend yield Ratio = 5.51% 3.85% c. This Year Last year Dividend payout ratio = Dividend paid / Earnings per share * 100 Dividend per share 2.1 1.2 Earning oer share                           5.52                           4.05 Dividend payout ratio = 38.05% 29.66% d. This Year Last year Price Earning Ratio = Current price / Earnings per share Current price per share 38.09 31.18 Earning oer share                           5.52                           4.05 Price Earning Ratio =                           6.90                           7.71

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