Question
Use the information in the table below to calculate the following ratios. Discuss the results to compare the financial positions of the two firms: Complete
Use the information in the table below to calculate the following ratios. Discuss the results to compare the financial positions of the two firms:
Complete the empty frames in the following table and show your work below (identify calculations by letter). For example, Spalings interest expense can be inferred from EBIT and Times interest earned, since TIE = EBIT / Interest expense.
Calculation for A:
EBIT = 300,000, TIE = 30, so 30 = 300,000 / Interest expense, and Interest expense = 300,000 / 30 = 10,000
| Spaling | Preston |
EBIT (Earnings before interest and taxes) | 300,000 | 190,000 |
Interest expense | A | 15,000 |
Net income | 200,000 | J |
Dividend payout ratio | 35% | K |
Retention ratio | B | 60% |
Dividends declared during the year | C | 40,000 |
Sales | 3,000,000 | L |
Average assets during the year | D | 1,500,000 |
Average debt during the year | 700,000 | M |
Average shareholders equity during the year | 1,800,000 | N |
Asset turnover ratio | E | 1.3333 |
Debt ratio | F | 0.3333=1/3 |
Return on sales | G | 0.095 |
Return on assets | 0.12 | O |
Return on equity | H | 0.10 |
Market price per share, beginning of year | 20 | P |
Market price per share, end of year | 15 | 20 |
Total shareholder return | I | 0.1556 |
Number of shares outstanding | 150,000 | 50,000 |
Times interest earned | 30 | Q |
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