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
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 companys common stock at the end of the year was $21. All of the companys sales are on account.
Weller Corporation Comparative Balance Sheet (dollars in thousands) | ||||||
This Year | Last Year | |||||
Assets | ||||||
Current assets: | ||||||
Cash | $ | 1,160 | $ | 1,320 | ||
Accounts receivable, net | 9,400 | 8,400 | ||||
Inventory | 12,900 | 11,500 | ||||
Prepaid expenses | 660 | 510 | ||||
Total current assets | 24,120 | 21,730 | ||||
Property and equipment: | ||||||
Land | 9,300 | 9,300 | ||||
Buildings and equipment, net | 45,098 | 37,994 | ||||
Total property and equipment | 54,398 | 47,294 | ||||
Total assets | $ | 78,518 | $ | 69,024 | ||
Liabilities and Stockholders' Equity | ||||||
Current liabilities: | ||||||
Accounts payable | $ | 20,200 | $ | 19,300 | ||
Accrued liabilities | 1,010 | 780 | ||||
Notes payable, short term | 0 | 150 | ||||
Total current liabilities | 21,210 | 20,230 | ||||
Long-term liabilities: | ||||||
Bonds payable | 9,100 | 9,100 | ||||
Total liabilities | 30,310 | 29,330 | ||||
Stockholders' equity: | ||||||
Common stock | 2,000 | 2,000 | ||||
Additional paid-in capital | 4,000 | 4,000 | ||||
Total paid-in capital | 6,000 | 6,000 | ||||
Retained earnings | 42,208 | 33,694 | ||||
Total stockholders' equity | 48,208 | 39,694 | ||||
Total liabilities and stockholders' equity | $ | 78,518 | $ | 69,024 | ||
Weller Corporation Comparative Income Statement and Reconciliation (dollars in thousands) | ||||||
This Year | Last Year | |||||
Sales | $ | 76,000 | $ | 64,000 | ||
Cost of goods sold | 42,000 | 40,000 | ||||
Gross margin | 34,000 | 24,000 | ||||
Selling and administrative expenses: | ||||||
Selling expenses | 11,300 | 10,700 | ||||
Administrative expenses | 7,200 | 6,300 | ||||
Total selling and administrative expenses | 18,500 | 17,000 | ||||
Net operating income | 15,500 | 7,000 | ||||
Interest expense | 910 | 910 | ||||
Net income before taxes | 14,590 | 6,090 | ||||
Income taxes | 5,836 | 2,436 | ||||
Net income | 8,754 | 3,654 | ||||
Dividends to common stockholders | 240 | 600 | ||||
Net income added to retained earnings | 8,514 | 3,054 | ||||
Beginning retained earnings | 33,694 | 30,640 | ||||
Ending retained earnings | $ | 42,208 | $ | 33,694 | ||
Required:
Compute the following financial ratios for this year:
1. Times interest earned ratio.
2. Debt-to-equity ratio.
3. Equity multiplier.
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