Comparative financial statements for Weller Corporation, a merchandising company

Question

Comparative financial statements for Weller Corporation, a merchandising company, for the year ending December 31 appear below. The company did not issue any new common stock during the year. A total of 700,000 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 this year was $25. 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 9,500 13,400 680 1,220 1,220 6,700 11,900 580 20,400 Total current assets 24,800 Property and equipment: Land 9,400 41,657 51,057 $75,259 71,457 9,400 41,059 Buildings and equipment, net Total property and equipment Total assets Liabilities and Stockholders Equity Current liabilities: 50,459 JS Accounts payable Accrued liabilities Notes payable, short term $19,000 19,200 830 140 20,170 1,040 20,040 9,800 Total current liabilities Long-term liabilities: 9,800 29,840 0 Bonds payable 29,970 Total liabilities Stockholders' equity: 2,000 4,000 6,000 35,487 41,487 $75,259 $71,457 2,000 4,000 6,000 39,419 45,419 Common stock Additional paid-in capital Total paid-in capital Retained earnings Total stockholders' equity Total liabilities and stockholders' equity

Explanation / Answer

1. Times interest earned ratio = Income before interest and taxes / interest expense

From the given data, Income before interest and taxes is net operating income, which is $8000 this year

Interest expense = $980

Times interest earned ratio = $8000 /$ 980 = 8.16

2. Debt to equity ratio = Long term debt / equity

where, debt is long term liabilities, which are $9800

Equity = $45419

Debt to equity ratio = $9800 / $45419 = 0.21

3. Equity multiplier = Total assets / Total stockholder's equity

= $75259/ $45419 = 1.65

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