Exercise 13-6 Financial Ratios for Assessing Market Performance [LO13-6] Compara

Question

Exercise 13-6 Financial Ratios for Assessing Market Performance [LO13-6] 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 800,000 shares of common stock were outstanding. The interest rate on the bonds, which were sold at their face value, was 12%. The income tax rate was 40% and the dividend per share of common stock was $0.40 this year. The market value of the company's common stock at the end of the year was $18. 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 $ 1,280 $ 1,560 9,100 9,700 8,200 1,800 2,100 12,300 Total current assets 25,080 20,960 operty and equipment: 6,000 6,000 Buildings and equipment, net Total property and equipment Total assets Liabilities and Stockholders' Equity 19,200 19,000 25,200 25,000 $50,280 $45,960 Current liabilities Accounts payable Accrued liabilities $ 9,500 $8,300 700 300 600 300 10,400 5,000 Notes payable, short term Total current liabilities Long-term liabilities 9,300 5,000 15,400 14,300 Bonds payable Total liabilities Stockholders' equity: Common stock Additional paid-in capital 800 4,200 800 4,200 5,000 Total paid-in capital Retained earnings 5,000 29,880 26,660 34,880 31,660 $50,280 $45,960 Total stockholders' equity Total liabilities and stockholders' equity

Explanation / Answer

1)Earning per share = Net Income this year/ shares outstanding

     = 3,540,000/800,000

      = $ 4.425 per share   [rounded to 4.43 ]

2)PE ratio =Market per share/earning per share

      = 18/ 4.425

     = 4.0678   [rounded to 4.07 ]

3)Dividend payout =Dividend/net income

    = 320/3540

    = .0904 or 9.04%

4)Dividend yield =dividend per share /market price per share

        = .40/18

      = .0222 or 2.22%

5)Book value per share = Equity at end /shares outstanding

    = 34,880,000/800,000

   = $ 43.60 per share

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