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 |
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|
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 |
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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.
