Brill Corporation has provided the following financial data: Year 2Year 1Total assets$1,360,000 $1,320,000 Total liabilities$601,000 $570,000 Common stock, $2 par value$140,000 $140,000 Total common stockholders' equity$759,000 $750,000 Income StatementFor the Year Ended December 31, Year 2Sales (all on account)$1,300,000 Cost of goods sold 900,000 Gross margin 400,000 Operating expenses 364,143 Net operating income 35,857 Interest expense 20,000 Net income before taxes 15,857 Income taxes (30%) 4,757 Net income$ 11,100 Dividends on common stock during Year 2 totaled $2,100. The market price of common stock at the end of Year 2 was $2.32 per share.Required:a. What is the company's times interest earned ratio for Year 2?b. What is the company's debt-to-equity
ratio at the end of Year 2?c. What is the company's equity multiplier at the end of Year 2?d. What is the company's net profit margin percentage for Year 2?e. What is the company's gross margin percentage for Year 2?f. What is the company's return on total assets for Year 2?g. What is the company's return on equity for Year 2?h. What is the company's earnings per share for Year 2?i. What is the company's price-earnings ratio for Year 2?j. What is the company's dividend payout ratio for Year 2?k. What is the company's dividend yield ratio for Year 2?l. What is the company's book value per share at the end of Year 2?
What will be an ideal response?
| a. | Times interest earned ratio = Earnings before interest expense and income taxes ÷ |
= $35,857 ÷ $20,000 = 1.79 (rounded)
| b. | Debt-to-equity ratio = Total liabilities ÷ Stockholders' equity |
| c. | Equity multiplier = Average total assets* ÷ Average stockholders' equity* |
*Average total assets = ($1,360,000 + $1,320,000) ÷ 2 = $1,340,000
**Average stockholders' equity = ($759,000 + $750,000) ÷ 2 = $754,500
| d. | Net profit margin percentage = Net income ÷ Sales |
| e. | Gross margin percentage = Gross margin ÷ Sales |
| f. | Return on total assets = Adjusted net income* ÷ Average total assets** |
*Adjusted net income = Net income + [Interest expense × (1 - Tax rate)]
= $11,100 + [$20,000 × (1 - 0.30)] = $25,100
**Average total assets = ($1,360,000 + $1,320,000) ÷ 2 = $1,340,000
| g. | Return on equity = Net income ÷ Average stockholders' equity* |
*Average stockholders' equity = ($759,000 + $750,000) ÷ 2 = $754,500
| h. | Earnings per share = Net Income ÷ Average number of common shares outstanding* |
*Number of common shares outstanding = Common stock ÷ Par value
= $140,000 ÷ $2 per share = 70,000 shares
| i. | Earnings per share = Net Income ÷ Average number of common shares outstanding* |
*Number of common shares outstanding = Common stock ÷ Par value
= $140,000 ÷ $2 per share = 70,000 shares
Price-earnings ratio = Market price per share ÷ Earnings per share
= $2.32 ÷ $0.16 = 14.50 (rounded)
| j. | Earnings per share = Net Income ÷ Average number of common shares outstanding* |
*Number of common shares outstanding = Common stock ÷ Par value
= $140,000 ÷ $2 per share = 70,000 shares
Dividend payout ratio = Dividends per share* ÷ Earnings per share
= $0.03 ÷ $0.16 = 18.8% (rounded)
*Dividends per share = Common dividends ÷ Common shares (see above)
= $2,100 ÷ 70,000 shares = $0.03 per share (rounded)
| k. | Dividend yield ratio = Dividends per share* ÷ Market price per share |
*Dividends per share = Common dividends ÷ Common shares (see above)
= $2,100 ÷ 70,000 shares = $0.03 per share (rounded)
| l. | Book value per share = Common stockholders' equity ÷ Number of common shares |
= $759,000 ÷ 70,000 shares = $10.84 per share (rounded)
*Number of common shares outstanding = Common stock ÷ Par value
= $140,000 ÷ $2 per share = 70,000 shares
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