Exercise 13-4 Financial Ratios for Debt Management [LO13-4]

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 $23. All of the companys sales are on account.

Weller Corporation Comparative Balance Sheet (dollars in thousands)
	This Year			Last Year
Assets
Current assets:
Cash	$	1,190		$	1,230
Accounts receivable, net		9,300			8,200
Inventory		12,500			12,000
Prepaid expenses		740			660
Total current assets		23,730			22,090
Property and equipment:
Land		10,800			10,800
Buildings and equipment, net		44,678			40,394
Total property and equipment		55,478			51,194
Total assets	$	79,208		$	73,284
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable	$	18,700		$	18,100
Accrued liabilities		990			720
Notes payable, short term		0			250
Total current liabilities		19,690			19,070
Long-term liabilities:
Bonds payable		9,600			9,600
Total liabilities		29,290			28,670
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		43,918			38,614
Total stockholders' equity		49,918			44,614
Total liabilities and stockholders' equity	$	79,208		$	73,284

Weller Corporation Comparative Income Statement and Reconciliation (dollars in thousands)
	This Year			Last Year
Sales	$	71,000		$	65,000
Cost of goods sold		43,000			33,000
Gross margin		28,000			32,000
Selling and administrative expenses:
Selling expenses		11,100			10,400
Administrative expenses		6,700			6,600
Total selling and administrative expenses		17,800			17,000
Net operating income		10,200			15,000
Interest expense		960			960
Net income before taxes		9,240			14,040
Income taxes		3,696			5,616
Net income		5,544			8,424
Dividends to common stockholders		240			450
Net income added to retained earnings		5,304			7,974
Beginning retained earnings		38,614			30,640
Ending retained earnings	$	43,918		$	38,614

Required:

Compute the following financial ratios for this year:

1.	Times interest earned ratio. (Round your answer to 1 decimal place.)

2.	Debt-to-equity ratio. (Round your answer to 2 decimal places.)

3.	Equity multiplier. (Round your answer to 2 decimal places.)