Kris Building Supply sells various building materials to retail outlets. The company has just approached Kingston State Bank requesting a $300,000 loan to strengthen the Cash account and to pay certain pressing short-term obligations. The companys financial statements for the most recent two years follow:

Kris Building Supply Comparative Balance Sheet
	This Year		Last Year
Assets
Current assets:
Cash	$	62,500	$	141,500
Marketable securities		4,500		18,500
Accounts receivable, net		473,000		300,000
Inventory		949,040		589,770
Prepaid expenses		20,500		29,500
Total current assets		1,509,540		1,079,270
Plant and equipment, net		1,649,410		1,506,555
Total assets	$	3,159,283	$	2,585,992
Liabilities and Stockholders' Equity
Liabilities:
Current liabilities	$	824,000	$	442,000
Bonds payable, 9%		624,500		624,500
Total liabilities		1,448,500		1,066,500
Stockholders' equity:
Preferred stock, $25 par, 7%		286,500		286,500
Common stock, $10 par		513,000		513,000
Retained earnings		911,283		719,992
Total stockholders' equity		1,710,783		1,519,492
Total liabilities and stockholder's Equity	$	3,159,283	$	2,585,992

Kris Building Supply Comparative Income Statement and Reconciliation
		This Year		Last Year
Sales	$	5,035,000	$	4,379,000
Cost of goods sold		3,885,600		3,458,600
Gross margin		1,149,400		920,400
Selling and administrative expenses		651,900		542,900
Net operating income		497,500		377,500
Interest expense		56,205		56,205
Net income before taxes		441,295		321,295
Income taxes (30%)		132,388		96,388
Net income		308,906		224,906
Dividends paid:
Preferred dividends		20,055		20,055
Common dividends		97,560		72,360
Total dividends paid		117,615		92,415
Net income retained		191,292		132,492
Retained earnings, beginning of year		719,992		587,500
Retained earnings, end of year	$	911,283	$	719,992

During the past year, the company has expanded the number of lines that it carries in order to stimulate sales and increase profits. It has also moved aggressively to acquire new customers. Sales terms are 2/10, n/30. All sales are on account.

Assume that the following ratios are typical of companies in the building supply industry:

Current ratio	2.5
Acid-test ratio	1.2
Average collection period	18	days
Average sale period	50	days
Debt-to-equity ratio	0.75
Times interest earned ratio	6.0
Return on total assets	10	%
Price-earnings ratio	9

Assume that you have just inherited several hundred shares of Kris Building Supply stock. Not being acquainted with the company, you decide to do some analytical work before making a decision about whether to retain or sell the stock you have inherited.

Required:
1.	You decide first to assess the well-being of the common stockholders. For both this year and last year, compute the following:

a.	The earnings per share.(Round your answers to 2 decimal places.)

b.	The dividend yield ratio for common stock. The companys common stock is currently selling for $47 per share; last year it sold for $42 per share. (Do not round intermediate calculations. Round your final answers to 1 decimal place.)

c.	The dividend payout ratio for common stock. (Do not round intermediate calculations. Round your final answers to 1 decimal place.)

d.	The price-earnings ratio. (Do not round intermediate calculations. Round your final answers to 1 decimal place.)

e.	The book value per share of common stock. (Round your answers to 2 decimal places.)

2.	You decide next to assess the companys rate of return. Compute the following for both this year and last year:

a.	The return on total assets. (Total assets at the beginning of last year were $2,310,000.) (Do not round intermediate calculations. Round your final answers to 1 decimal place.)

b.	The return on common stockholders equity. (Stockholders equity at the beginning of last year was $1,278,000.) (Do not round intermediate calculations. Round your final answers to 1 decimal place.)

c.

Is the companys financial leverage positive or negative?

	Positive
	Negative