Exercise 16-4 (Algo) Financial Ratios for Debt Management [LO16-4]

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 this year was $21. All of the companys sales are on account.

Weller Corporation Comparative Balance Sheet (dollars in thousands)
	This Year			Last Year
Assets
Current assets:
Cash	$	1,270		$	1,390
Accounts receivable, net		10,400			6,600
Inventory		13,700			11,500
Prepaid expenses		660			530
Total current assets		26,030			20,020
Property and equipment:
Land		9,700			9,700
Buildings and equipment, net		42,830			39,500
Total property and equipment		52,530			49,200
Total assets	$	78,560		$	69,220
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable	$	19,600		$	17,600
Accrued liabilities		1,090			830
Notes payable, short term		0			300
Total current liabilities		20,690			18,730
Long-term liabilities:
Bonds payable		9,000			9,000
Total liabilities		29,690			27,730
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		42,870			35,490
Total stockholders' equity		48,870			41,490
Total liabilities and stockholders' equity	$	78,560		$	69,220

Weller Corporation Comparative Income Statement and Reconciliation (dollars in thousands)
	This Year			Last Year
Sales	$	72,000		$	65,000
Cost of goods sold		40,000			39,000
Gross margin		32,000			26,000
Selling and administrative expenses:
Selling expenses		11,100			10,400
Administrative expenses		7,300			6,700
Total selling and administrative expenses		18,400			17,100
Net operating income		13,600			8,900
Interest expense		900			900
Net income before taxes		12,700			8,000
Income taxes		5,080			3,200
Net income		7,620			4,800
Dividends to common stockholders		240			450
Net income added to retained earnings		7,380			4,350
Beginning retained earnings		35,490			31,140
Ending retained earnings	$	42,870		$	35,490

Required:

Compute the following financial ratios for this year:

1. Times interest earned ratio.

2. Debt-to-equity ratio.

3. Equity multiplier.