Exercise 14-4 Financial Ratios for Debt Management [LO14-4]

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 bond payable was 10%, the income tax rate was 40%, and the dividend per share of common stock was $0.75 last year and $0.40 this year. The market value of the companys common stock at the end of the year was $22. All of the companys sales are on account.

Weller Corporation Comparative Balance Sheet (dollars in thousands)
	This Year			Last Year
Assets
Current assets:
Cash	$	1,220		$	1,360
Accounts receivable, net		11,000			7,900
Inventory		12,300			10,600
Prepaid expenses		710			580
Total current assets		25,230			20,440
Property and equipment:
Land		10,000			10,000
Buildings and equipment, net		44,532			40,516
Total property and equipment		54,532			50,516
Total assets	$	79,762		$	70,956
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable	$	18,800		$	18,700
Accrued liabilities		970			740
Notes payable, short term		0			170
Total current liabilities		19,770			19,610
Long-term liabilities:
Bonds payable		8,900			8,900
Total liabilities		28,670			28,510
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		45,092			36,446
Total stockholders' equity		51,092			42,446
Total liabilities and stockholders' equity	$	79,762		$	70,956

Weller Corporation Comparative Income Statement and Reconciliation (dollars in thousands)
	This Year			Last Year
Sales	$	68,000		$	65,000
Cost of goods sold		34,000			38,000
Gross margin		34,000			27,000
Selling and administrative expenses:
Selling expenses		11,200			10,500
Administrative expenses		7,100			6,100
Total selling and administrative expenses		18,300			16,600
Net operating income		15,700			10,400
Interest expense		890			890
Net income before taxes		14,810			9,510
Income taxes		5,924			3,804
Net income		8,886			5,706
Dividends to common stockholders		240			600
Net income added to retained earnings		8,646			5,106
Beginning retained earnings		36,446			31,340
Ending retained earnings	$	45,092		$	36,446

Required:

Compute the following financial ratios for this year:

1. Times interest earned ratio.

2. Debt-to-equity ratio.

3. Equity multiplier.

(For all requirements, round your answers to 2 decimal places.)