Exercise 15-4 Financial Ratios for Debt Management [LO15-4]

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 this 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	$	1,100		$	1,280
Accounts receivable, net		9,600			7,600
Inventory		12,800			11,200
Prepaid expenses		620			650
Total current assets		24,120			20,730
Property and equipment:
Land		10,600			10,600
Buildings and equipment, net		46,082			39,786
Total property and equipment		56,682			50,386
Total assets	$	80,802		$	71,116
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable	$	20,400		$	18,800
Accrued liabilities		1,040			890
Notes payable, short term		0			240
Total current liabilities		21,440			19,930
Long-term liabilities:
Bonds payable		9,400			9,400
Total liabilities		30,840			29,330
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		43,962			35,786
Total stockholders' equity		49,962			41,786
Total liabilities and stockholders' equity	$	80,802		$	71,116

Weller Corporation Comparative Income Statement and Reconciliation (dollars in thousands)
	This Year			Last Year
Sales	$	73,000		$	66,000
Cost of goods sold		40,000			40,000
Gross margin		33,000			26,000
Selling and administrative expenses:
Selling expenses		10,700			10,800
Administrative expenses		7,400			6,100
Total selling and administrative expenses		18,100			16,900
Net operating income		14,900			9,100
Interest expense		940			940
Net income before taxes		13,960			8,160
Income taxes		5,584			3,264
Net income		8,376			4,896
Dividends to common stockholders		200			250
Net income added to retained earnings		8,176			4,646
Beginning retained earnings		35,786			31,140
Ending retained earnings	$	43,962		$	35,786

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.)