Using the information provided, find: 1) Compute R Company\'s 2017 earnings per

Question

Using the information provided, find:

1) Compute R Company's 2017 earnings per share (EPS)

2) Compute R Company's 2017 price earnings ratio.

3) Compute R Company's 2017 gross profit rate.

4) Compute R Company's 2017 profit margin

5) Compute R Company's 2017 return on assets.

6) Compute R Company's 2017 payout ratio

7) Compute R Company's 2017 return on common stockholders' equity.

R Company has the following selected financial statement information: R Company 12/31/2017 & 12/31/2016 Balance sheet 12/31/17 12/31/16 30,000 90,000 270,000 230,000 600,000 550,000 Cash 20,000 110,000 Receivable Land 100,000 $150,000 150,000 100,000 Current Liabilities Long-term Liabilities Preferred Stock Common Stock Retained Earnings 50,000 500,000 400,000 200,000 50,000 200,000 R Company 2017 Income Statement Net Sales (all credit) Cost of Goods Sold Gross Profit $800,000 500,000 300,000 270,000 30,000 5,000 25,000 10,000 15,000 Income Interest Expense Income before taxes Income tax expense Net Income Other information: Common shares outstanding 12/31/2016 Common shares outstanding 12/31/2017 Market price per s Cash dividends-common Preferred dividends 20,000 25,000 e-common $7.50 $10,000 $5,000 har

Explanation / Answer

Solution: 1. R Company's 2017 earnings per share (EPS) = $ 0.44 per share Working Notes: EPS = (net income - preferred dividend)/(average number of shares of common stock outstanding during the year) EPS= (15,000 - 5,000)/(20,000+25,000)/2 =10,000/22,500 =0.4444 = 0.44 per share 2. R Company's 2017 price earnings ratio = 17.05 Working Notes: PE ratio = (current market price of a company share)/( earnings per share) PE ratio= 7.5/0.44 =17.04545 =17.05 3. R Company's 2017 gross profit rate = 37.50 % Working Notes: Gross profit rate = Gross profit / Net sales =3,00,000/800,000 =0.375 =37.50 % 4. R Company's 2017 profit margin = 1.88 % Working Notes: Profit Margin = Net income / Net sales =15,000/800,000 =0.01875 = 1.875 %. = 1.88 % 5. R Company's 2017 return on assets = 1.58 % Working Notes: Return on assets = Net income / Average of total assets =15,000/(1,000,000 + 900,000)/2 =15,000/950,000 = 0.015789 = 1.58 % 6. R Company's 2017 payout ratio = 100% Working Notes: Payout ratio = DPS/EPS =Cash dividend/(Avg. O/s common stock)/0.44 = 10,000/(20,000+25,000)/2/0.44 =0.44/0.44 = 1 = 100 % 7. R Company's 2017 return on common stockholders' equity =1.54% Working Notes: Return on common stockholders' equity = (Net income - Preferred Dividend )/( Avg. of Common stock & Retained earnings) = (15,000 - 5,000)/(700,000+600,000)/2 =10,000/650,000 =0.0153846 =1.538% =1.54% Please feel free to ask if anything about above solution in comment section of the question.

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