Question
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.
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.)
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