Cepeda Company manufactures backpacks. During 2014, Cepeda issued bonds at 11% i

Question

Cepeda Company manufactures backpacks. During 2014, Cepeda issued bonds at 11% interest and used the cash proceeds to purchase treasury stock. The following financial information is available for Cepeda Company for the years 2014 and 2013.

2014

2013

(a) Use the information above to calculate the following ratios for both years: (Round answers to 1 decimal place, e.g. 12.5% or 12.5.)

2014

2013

2014

2013

Sales revenue $18,162,000 $18,162,000 Net income 4,520,320 5,045,000 Interest expense 692,000 193,760 Tax expense 1,352,060 1,513,500 Dividends paid on common stock 1,231,760 1,419,984 Dividends paid on preferred stock 415,200 415,200 Total assets (year-end) 29,261,000 34,053,750 Average total assets 21,711,500 24,583,992 Total liabilities (year-end) 8,304,000 4,152,000 Avg. total common stockholders’ equity 13,009,600 19,514,400

Explanation / Answer

Solution:-

Sr no Ratio 2014 2013 1 Return on assets:- (Net Income/Average total Assets)*100 (4,520,320/21,711,500)*100=20.8% (5,045,000/24,583,992)*100=20.5% 2 Return on common stockholders’ equity:- (Net income -preference dividend/Avg. total common stockholders’ equity)100 (4,520,320- 415,200/13,009,600)*100=31.6% (5,045,000-415,200/19,514,400)100=23.7% 3 Total Dividend paid 1,231,760 + 415,200=1646960 1,419,984+415,200=1,835,184 Payout ratio:- (Total Dividendpaid/net income)*100 (1,646,960/4,520,320)*100=36.4% (1,835,184/5,045,000)*100=36.4% 4 Debt (692,000/11)*100=6,290,909 (193,760/11)*100 =1,761,454 Debt to assets ratio:- TotalDebt/Total Assets (6,290,909/29,261,000)*100=21.5% (1,761,454/34,053,750)*100=5.2% 5 profit before interest and tax 4,520,320+692,000+1,352,060=6,564,380 5,045,000+193,760+1,513,500=6,752,260 Times interest earned:- profit before interest and tax/ interest expense 6,564,380/692,000 = 9.5 Times 6,752,260/193,760 =34.8 times

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