The income statement for the Over Under Company for the year ended December 31, 2007, appears below.
Sales...............................................670,000
Costs of goods sold.............................390,000
Gross profit.......................................280,000
Expenses........................................180,000*
Net income.....................................$100,000
*Includes $25,000 of interest expense and $20,000 of income tax expense.
Additional information:
a. Common stock outstanding on January 1, 2007, was 50,000 shares. On July 1, 2007, 10,000 more shares were issued.
b. The market price of Over Under's stock was $18 at the end of 2007.c. Cash dividends of $35,000 were paid, $5,000 of which were paid to preferred stockholders.
1: Compute the following ratios for 2007 (show your work):
a. Earnings per share.
b. Price-earnings.
c. Times interest earned.
2: Please explain the meaning of these ratios and the results you have calculated.