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 500,000 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 $27. All of the companys sales are on account.

Weller Corporation Comparative Balance Sheet (dollars in thousands)
	This Year			Last Year
Assets
Current assets:
Cash	$	1,200		$	1,290
Accounts receivable, net		11,000			8,400
Inventory		13,800			10,700
Prepaid expenses		690			560
Total current assets		26,690			20,950
Property and equipment:
Land		10,500			10,500
Buildings and equipment, net		45,879			39,607
Total property and equipment		56,379			50,107
Total assets	$	83,069		$	71,057
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable	$	18,800		$	18,200
Accrued liabilities		1,100			720
Notes payable, short term		0			240
Total current liabilities		19,900			19,160
Long-term liabilities:
Bonds payable		8,800			8,800
Total liabilities		28,700			27,960
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		48,369			37,097
Total stockholders' equity		54,369			43,097
Total liabilities and stockholders' equity	$	83,069		$	71,057

Weller Corporation Comparative Income Statement and Reconciliation (dollars in thousands)
	This Year			Last Year
Sales	$	72,000		$	66,000
Cost of goods sold		34,000			38,000
Gross margin		38,000			28,000
Selling and administrative expenses:
Selling expenses		11,400			10,100
Administrative expenses		6,600			6,800
Total selling and administrative expenses		18,000			16,900
Net operating income		20,000			11,100
Interest expense		880			880
Net income before taxes		19,120			10,220
Income taxes		7,648			4,088
Net income		11,472			6,132
Dividends to common stockholders		200			375
Net income added to retained earnings		11,272			5,757
Beginning retained earnings		37,097			31,340
Ending retained earnings	$	48,369		$	37,097

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.)