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 $0.40 this year. The market value of the company’s common stock at the end of the year was $25. All of the company’s sales are on account.

      

      

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 $0.40 this year. The market value of the company’s common stock at the end of the year was $25. All of the company’s sales are on account.

Explanation / Answer

1. Times interest earned ratio.

2. Debt-to-equity ratio.

3. Equity multiplier.

Particulars This Year Last Year Net income before Interest & Taxes or Net operating income (A) $ 15,000 $ 9,000 Interest expense (B) $ 980 $ 980 Times interest earned ratio. (C = A/B) 15.31 Times 9.18 Times

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