Consecutive five-year balance sheets and income statements of the Donna Szabo Corporation are as follows:

Donna Szabo Corporation Balance Sheets December 31, 1996 through December 31, 2000

(Dollars in thousands) 2000 1999 1998 1997 1996 Assets Current assets:

Cash $ 26,000 $ 27,000 $ 29,000 $ 28,000 $ 27,000 Accounts receivable, net 125,000 126,000 128,000 130,000 128,000 Inventories 140,000 143,000 145,000 146,000 144,000 Total current assets 291,000 296,000 302,000 304,000 299,000 Property, plant, and equipment, net 420,000 418,000 417,000 418,000 415,000 Total assets $711,000 $714,000 $719,000 $722,000 $714,000

(Dollars in thousands) 2000 1999 1998 1997 1996 Liabilities and Stockholders’ Equity Current liabilities:

Accounts payable $120,000 $122,000 $122,500 $124,000 $125,000 Income taxes 12,000 13,000 13,500 13,000 12,000 Total current liabilities 132,000 135,000 136,000 137,000 137,000 Long-term debt 90,000 65,000 67,000 68,000 69,000 Stockholders’ equity:

Preferred stock 49,000 76,000 80,000 82,000 75,000 Common stock 290,000 290,000 290,000 290,000 290,000 Paid-in capital in excess of par, common stock 70,000 70,000 70,000 70,000 70,000 Retained earnings 80,000 78,000 76,000 75,000 73,000 Total stockholders’ equity 489,000 514,00 516,000 517,000 508,000 Total liabilities and stockholders’ equity $711,000 $714,000 $719,000 $722,000 $714,000 Donna Szabo Corporation Statement of Earnings Years Ended December 31, 1996–2000

(In thousands, except per share) 2000 1999 1998 1997 1996 Net sales $890,000 $870,000 $850,000 $935,000 $920,000 Cost of goods sold (540,000) (530,700) (522,750) (579,000) (570,000)

Gross profit 350,000 339,300 327,250 356,000 350,000 Selling and administrative expense (230,000) (225,000) (220,000) (225,000) (224,000)

Interest expense (9,500) (6,600) (6,800) (6,900) (7,000)

Earnings from continuing operations before income taxes 110,500 107,700 100,450 124,100 119,000 Income taxes (33,000) (33,300) (32,100) (30,400) (37,400)

Earnings from continuing operations 77,500 74,400 68,350 93,700 81,600 Extraordinary gains, net of taxes 20,000 ————

Net earnings $ 97,500 $ 74,400 $ 68,350 $ 93,700 $ 81,600 Earnings per share:

Continuing operations $2.67 $ 2.57 $ 2.36 $ 3.23 $ 2.81 Extraordinary gain .69 ————

Net earnings per share $ 3.36 $ 2.57 $ 2.36 $ 3.23 $ 2.81 Note: Additional data:

1. Preferred stock dividends (in thousands):

2000 $3,920 1999 $6,100 1998 $6,400 1997 $6,600 1996 $6,000 2. Common shares outstanding, 29,000,000 (actual) (1996–2000)

3. Stock options outstanding, 1,000,000 (actual) (1996–2000)

4. Dividends per common share (actual):

2000 $3.16 1999 $2.29 1998 $2.10 1997 $2.93 1996 $2.80 5. Market price per common share (actual):

2000 $24.00 1999 $22.00 1998 $21.00 1997 $37.00 1996 $29.00 Required

a. Compute or determine the following for the years 1996–2000.

1. Degree of financial leverage 2. Earnings per common share 3. Price/earnings ratio 4. Percentage of earnings retained 5. Dividend payout 6. Dividend yield 7. Book value per share 8. Materiality of options

b. Comment from the perspective of an investor.