Financial Ratios for Common Stockholders [LO2]

Comparative financial statements for Heritage Antiquing Services for the fiscal year ending December 31 appear on the following page. The company did not issue any new common or preferred stock during the year. A total of 600 thousand shares of common stock were outstanding.

The interest rate on the bond payable was 14%, the income tax rate was 40%, and the dividend per share of common stock was $0.75. The market value of the company’s common stock at the end of the year was $26. All of the company’s sales are on account.

Heritage Antiquing Services Comparative Balance Sheet (dollars in thousands)
This Year Last Year Assets Current assets:
Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,080 $ 1,210 Accounts receivable, net . . . . . . . . . . . . . . . 9,000 6,500 Inventory . . . . . . . . . . . . . . . . . . . . . . . . . . . 12,000 10,600 Prepaid expenses . . . . . . . . . . . . . . . . . . . . 600 500 Total current assets . . . . . . . . . . . . . . . . . . . . 22,680 18,810 Property and equipment:
Land . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9,000 9,000 Buildings and equipment, net . . . . . . . . . . . 36,800 38,000 Total property and equipment . . . . . . . . . . . . . 45,800 47,000 Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . $68,480 $65,810 Liabilities and Stockholders’ Equity Current liabilities:
Accounts payable . . . . . . . . . . . . . . . . . . . . $18,500 $17,400 Accrued payables . . . . . . . . . . . . . . . . . . . . 900 700 Notes payable, short term . . . . . . . . . . . . . . — 100 Total current liabilities . . . . . . . . . . . . . . . . . . . 19,400 18,200 Long-term liabilities:
Bonds payable . . . . . . . . . . . . . . . . . . . . . . 8,000 8,000 Total liabilities . . . . . . . . . . . . . . . . . . . . . . . . . 27,400 26,200 Stockholders’ equity:
Preferred stock . . . . . . . . . . . . . . . . . . . . . . 1,000 1,000 Common stock . . . . . . . . . . . . . . . . . . . . . . 2,000 2,000 Additional paid-in capital . . . . . . . . . . . . . . . 4,000 4,000 Total paid-in capital . . . . . . . . . . . . . . . . . 7,000 7,000 Retained earnings . . . . . . . . . . . . . . . . . . 34,080 32,610 Total stockholders’ equity . . . . . . . . . . . . . . . . 41,080 39,610 Total liabilities and stockholders’ equity . . . . . $68,480 $65,810 Heritage Antiquing Services Comparative Income Statement and Reconciliation (dollars in thousands)
This Year Last Year Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $66,000 $64,000 Cost of goods sold . . . . . . . . . . . . . . . . . . . . . 43,000 42,000 Gross margin . . . . . . . . . . . . . . . . . . . . . . . . . 23,000 22,000 Selling and administrative expenses:
Selling expenses . . . . . . . . . . . . . . . . . . . . 11,500 11,000 Administrative expenses . . . . . . . . . . . . . . . 7,400 7,000 Total selling and administrative expenses . . . . 18,900 18,000 Net operating income . . . . . . . . . . . . . . . . . . . 4,100 4,000 Interest expense . . . . . . . . . . . . . . . . . . . . . . . 800 800 Net income before taxes . . . . . . . . . . . . . . . . . 3,300 3,200 Income taxes . . . . . . . . . . . . . . . . . . . . . . . . . 1,320 1,280 Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,980 1,920 Dividends to preferred stockholders . . . . . . . . 60 400 Net income remaining for common stockholders . . . . . . . . . . . . . . . . . 1,920 1,520 Dividends to common stockholders . . . . . . . . 450 450 Net income added to retained earnings . . . . . 1,470 1,070 Retained earnings, beginning of year . . . . . . . 32,610 31,540 Retained earnings, end of year . . . . . . . . . . . $34,080 $32,610 Required:
Compute the following financial ratios for common stockholders for this year:
1. Gross m argin pe rcentage.
2. Earnings per share of common stock.
3. Price-earnings r atio.
4. Dividend pa yout r atio.
5. Dividend yi eld r atio.
6. Return on t otal a ssets.
7. Return on c ommon s tockholders’ e quity.
8. Book v alue pe r s hare.