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 600,000 shares of common stock were outstanding. The interest rate on the bonds, which were sold at their face value, was 10%. The income tax rate was 40% and the dividend per share of common stock was S0.40 this year. The market value of the company's common stock at the end of the year was $29. 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 $ 1,090 1,320 11,000 8,300 12,700 11,500 700 730 Total current assets 25,520 21,820 Property and equipment: 10,100 10,100 Land Buildings and equipment, net 46.604 39,262 56,704 49,362 $82,224 $71,182 Total property and equipment Total assets Liabilities and Stockholders' Equity Current liabilities Accounts payable Accrued iabilities Notes payable, short term $18,800 $18,000 880 1.040 100 19,84018,980 8,800 8,800 28,640 27,780 2,000 2,000 Total current liabilities Long-term liabilities Bonds payable Total liabilities Stockholders' equity: Common stock Additional paid-in capital 4,000 4,000 6,000 6,000 Total paid-in capital Retained earnings 47,584 37,402 53,584 43,402 $82,224 $71,182 Total stockholders' equity Total liabilities and stockholders' equity Weller Corporation Comparative Income Statement and Reconciliation dollars in thousands) This Year Last Year $70,000 $85,000 Sales Cost of goods sold

Explanation / Answer

Ratios for This Year 1 Times Interest Earned = Net Operating Income/ Interest Net Operating Income $ 18600 Interest $ 880 Times Interest Earned = 18600/880 = 21.14 Times 2 Debt Equity Ratio = Total Liabilities / Total Shareholders Equity Total Liabilities $ 28640 Total Shareholders Equity $ 53584 Debt Equity Ratio = 28640/53584 = 0.53 3 Equity Multiplier = Total Assets / Total Shareholders Equity Total Assets $ 82224 Total Shareholders Equity $ 53584 Equity Multiplier = 82224/53584 = 1.53 Ratios for This Year 1 Times Interest Earned = Net Operating Income/ Interest Net Operating Income $ 18600 Interest $ 880 Times Interest Earned = 18600/880 = 21.14 Times 2 Debt Equity Ratio = Total Liabilities / Total Shareholders Equity Total Liabilities $ 28640 Total Shareholders Equity $ 53584 Debt Equity Ratio = 28640/53584 = 0.53 3 Equity Multiplier = Total Assets / Total Shareholders Equity Total Assets $ 82224 Total Shareholders Equity $ 53584 Equity Multiplier = 82224/53584 = 1.53

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