Financial ratios for common stockholders

EXERCISE 15–2 Financial Ratios for Common Stockholders [LO2]

Comparative financial statements for Heritage Antiquing Services for the fiscal year ending December 31 appear on the following page. The company did not issue any new common or pre- ferred stock during the year. A total of 600 thousand shares of common stock were outstanding. The interest rate on the bond payable was 14%, the income tax rate was 40%, and the dividend per share of common stock was $0.75. The market value of the company’s common stock at the end of the year was $26. All of the company’s sales are on account.

 

 

Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$  1,080

 

$ 1,210

Accounts receivable, net . . . . . . . . . . . . . . .

9,000

 

6,500

Inventory . . . . . . . . . . . . . . . . . . . . . . . . . . .

12,000

 

10,600

Prepaid expenses . . . . . . . . . . . . . . . . . . . .

600

 

500

Total current assets  . . . . . . . . . . . . . . . . . . . .

22,680

 

18,810

Property and equipment:

Land . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

 

9,000

 

 

9,000

Buildings and equipment, net . . . . . . . . . . .

36,800

 

38,000

Total property and equipment . . . . . . . . . . . . .

45,800

 

47,000

Total assets  . . . . . . . . . . . . . . . . . . . . . . . . . .

$68,480

 

$65,810

 

Liabilities and Stockholders’ Equity

Current liabilities:

Accounts payable . . . . . . . . . . . . . . . . . . . .

 

 

$18,500

 

 

 

$17,400

Accrued payables . . . . . . . . . . . . . . . . . . . .

900

 

700

Notes payable, short term . . . . . . . . . . . . . .

 

100

Total current liabilities . . . . . . . . . . . . . . . . . . . Long-term liabilities:

Bonds payable  . . . . . . . . . . . . . . . . . . . . . .

19,400

 

8,000

 

18,200

 

8,000

Total liabilities . . . . . . . . . . . . . . . . . . . . . . . . .

27,400

 

26,200

Stockholders’ equity:

Preferred stock . . . . . . . . . . . . . . . . . . . . . .

 

1,000

 

 

1,000

Common stock . . . . . . . . . . . . . . . . . . . . . .

2,000

 

2,000

Additional paid-in capital . . . . . . . . . . . . . . .

4,000

 

4,000

Total paid-in capital . . . . . . . . . . . . . . . . .

7,000

 

7,000

Retained earnings . . . . . . . . . . . . . . . . . .

34,080

 

32,610

Total stockholders’ equity . . . . . . . . . . . . . . . .

41,080

 

39,610

Total liabilities and stockholders’ equity . . . . .

$68,480

 

$65,810

 

 

 

 

 

 

Sales  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$66,000

 

$64,000

Cost of goods sold . . . . . . . . . . . . . . . . . . . . .

43,000

 

42,000

Gross margin  . . . . . . . . . . . . . . . . . . . . . . . . .

23,000

 

22,000

Selling and administrative expenses:

Selling expenses  . . . . . . . . . . . . . . . . . . . .

 

11,500

 

 

11,000

Administrative expenses . . . . . . . . . . . . . . .

7,400

 

7,000

Total selling and administrative expenses . . . .

18,900

 

18,000

Net operating income . . . . . . . . . . . . . . . . . . .

4,100

 

4,000

Interest expense . . . . . . . . . . . . . . . . . . . . . . .

800

 

800

Net income before taxes . . . . . . . . . . . . . . . . .

3,300

 

3,200

Income taxes . . . . . . . . . . . . . . . . . . . . . . . . .

1,320

 

1,280

Net income . . . . . . . . . . . . . . . . . . . . . . . . . . .

1,980

 

1,920

Dividends to preferred stockholders . . . . . . . .

60

 

400

Net income remaining for

common stockholders . . . . . . . . . . . . . . . . .

 

1,920

 

 

1,520

Dividends to common stockholders . . . . . . . .

450

 

450

Net income added to retained earnings . . . . .

1,470

 

1,070

Retained earnings, beginning of year . . . . . . .

32,610

 

31,540

Retained earnings, end of year . . . . . . . . . . .

$34,080

 

$32,610

 

Required:

Compute the following financial ratios for common stockholders for this year:

1.       Gross margin percentage.

2.       Earnings per share of common stock.

3.       Price-earnings ratio.

4.       Dividend payout ratio.

5.       Dividend yield ratio.

6.       Return on total assets.

7.       Return on common stockholders’ equity.

8.       Book value per share.

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