You have just been hired as a loan officer at Westmount Bank. Your supervisor has given you a file containing a request from Hill Company, a manufacturer of computer components, for a $2,000,000 five-year loan. Financial statement data on the company for the past two years are given below:

Current Ratio					2.3
Acid-test ratio					1.2
Average collection period					31	days
Average sale period					60	days
Return on Assets					9.50%
Debt-to-equity ratio					0.65
Times Interest Earned ratio					5.7
Price-earnings ratio					10

Pat Smith, who just three years ago was appointed president of Hill Company, admits that the company has been inconsistent in its performance over the past several years. But Smith argues that the company has its costs under control and is now experiencing strong sales growth, as evidenced by the more than 25% increase in sales over the past year. Smith also argues that investors have recognized the improving situation at Hill Company, as shown by the jump in the price of its common shares from $15 per share last year to $27 per share this year. Smith believes that with strong leadership and with the modernized equipment that the $2,000,000 loan will permit the company to buy, profits will be even stronger in the future. Anxious to impress your supervisor, you decide to generate all the information you can about the company. You determine that the following ratios are typical of companies in Hill Company's industry:

Required

2. You decide to assess how well the company is doing from the perspective of the common shareholders next. For both this year and last year, compute

a. The earnings per share.

b. The dividend yield dividend Yield Dividend yield refers to a stock's annual dividend payments to shareholders, expressed as a percentage of the stock's current price. The dividend per share that a company pays divided by the share price. This is reported on the financial statements... ratio for common shares.

c. The dividend payout ratio for common shares.

HILL COMPANY Comparative Balance Sheet This Year Last Year Assets Current assets: Cash..... Temporary investments... Accounts receivable, net. Inventory. Prepaid expenses... Total current assets .... Plant and equipment, net. Total assets $ 240,000 0 675,000 975,000 60,000 1,950,000 2,325,000 $4,275,000 $ 315,000 75,000 450,000 600,000 45,000 1,485,000 2.235.000 $3,720.000 $ 975,000 900,000 1,875,000 $ 690,000 750,000 1,440,000 Liabilities and Shareholders' Equity Liabilities: Current liabilities Bonds payable, 10% .. Total liabilities .. Shareholders' equity: Preferred shares, 20,000, $2.40 no par value Common shares, 50,000.... Retained earnings .. Total shareholders' equity.. Total liabilities and shareholders' equity 450,000 1,500,000 450,000 2,400,000 $4,275,000 450,000 1,500,000 330.000 2.280,000 $3,720,000 HILL COMPANY Comparative Income Statement and Reconciliation of Retained Earnings This Year Last Year Sales (all on account).... Cost of goods sold.... Gross margin...... Selling and administrative expenses. Operating income Interest expense..... Net income before taxes Income taxes (30%)..... Net income $3,937,500 3,150,000 787,500 397,500 390,000 90,000 300,000 90,000 210,000 $3,120,000 2,475,000 645,000 390,000 255,000 75,000 180,000 54,000 126,000 Dividends paid: Preferred shares..... Common shares. . . . . Total dividends paid Net income retained ... Retained earnings, beginning of year Retained earnings, end of year ..... 36,000 54,000 90,000 120,000 330,000 $450,000 36,000 27.000 63,000 63,000 267,000 $330,000