Exercise 13-11 Analyzing profitability LO P3

Simon Companys year-end balance sheets follow.

At December 31	Current Yr			1 Yr Ago			2 Yrs Ago
Assets
Cash	$	31,100		$	34,600		$	36,600
Accounts receivable, net		89,900			62,100			50,700
Merchandise inventory		29,808			82,700			56,100
Prepaid expenses		10,545			10,491			4,161
Plant assets, net		393,647			295,109			242,439
Total assets	$	555,000		$	485,000		$	390,000
Liabilities and Equity
Accounts payable	$	139,577		$	80,326		$	50,965
Long-term notes payable secured by mortgages on plant assets		104,340			108,203			85,328
Common stock, $10 par value		162,500			162,500			162,500
Retained earnings		148,583			133,971			91,207
Total liabilities and equity	$	555,000		$	485,000		$	390,000

The companys income statements for the Current Year and 1 Year Ago, follow.

For Year Ended December 31	Current Yr						1 Yr Ago
Sales				$	721,500					$	577,150
Cost of goods sold	$	440,115					$	375,148
Other operating expenses		223,665						146,019
Interest expense		12,266						13,274
Income tax expense		9,380						8,657
Total costs and expenses					685,426						543,098
Net income				$	36,074					$	34,052
Earnings per share				$	2.22					$	2.10

Additional information about the company follows.

Common stock market price, December 31, Current Year	$	28.00
Common stock market price, December 31, 1 Year Ago		26.00
Annual cash dividends per share in Current Year		0.28
Annual cash dividends per share 1 Year Ago		0.14

For both the Current Year and 1 Year Ago, compute the following ratios: 1. Return on common stockholders' equity. 2. Price-earnings ratio on December 31. 2a. Assuming Simon's competitor has a price-earnings ratio of 7, which company has higher market expectations for future growth? 3. Dividend yield.