Question
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.
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 500,000 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 | $ | 1,110 | $ | 1,330 | ||
Accounts receivable, net | 9,200 | 7,300 | ||||
Inventory | 12,100 | 11,000 | ||||
Prepaid expenses | 790 | 640 | ||||
Total current assets | 23,200 | 20,270 | ||||
Property and equipment: | ||||||
Land | 9,100 | 9,100 | ||||
Buildings and equipment, net | 53,013 | 43,869 | ||||
Total property and equipment | 62,113 | 52,969 | ||||
Total assets | $ | 85,313 | $ | 73,239 | ||
Liabilities and Stockholders' Equity | ||||||
Current liabilities: | ||||||
Accounts payable | $ | 18,800 | $ | 18,100 | ||
Accrued liabilities | 920 | 810 | ||||
Notes payable, short term | 0 | 200 | ||||
Total current liabilities | 19,720 | 19,110 | ||||
Long-term liabilities: | ||||||
Bonds payable | 9,600 | 9,600 | ||||
Total liabilities | 29,320 | 28,710 | ||||
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 | 49,993 | 38,529 | ||||
Total stockholders' equity | 55,993 | 44,529 | ||||
Total liabilities and stockholders' equity | $ | 85,313 | $ | 73,239 | ||
Weller Corporation Comparative Income Statement and Reconciliation (dollars in thousands) | ||||||
This Year | Last Year | |||||
Sales | $ | 75,000 | $ | 65,000 | ||
Cost of goods sold | 37,000 | 34,000 | ||||
Gross margin | 38,000 | 31,000 | ||||
Selling and administrative expenses: | ||||||
Selling expenses | 10,600 | 10,500 | ||||
Administrative expenses | 7,000 | 6,600 | ||||
Total selling and administrative expenses | 17,600 | 17,100 | ||||
Net operating income | 20,400 | 13,900 | ||||
Interest expense | 960 | 960 | ||||
Net income before taxes | 19,440 | 12,940 | ||||
Income taxes | 7,776 | 5,176 | ||||
Net income | 11,664 | 7,764 | ||||
Dividends to common stockholders | 200 | 375 | ||||
Net income added to retained earnings | 11,464 | 7,389 | ||||
Beginning retained earnings | 38,529 | 31,140 | ||||
Ending retained earnings | $ | 49,993 | $ | 38,529 | ||
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.) |
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