Tobia Corporation has provided the following financial data:Balance SheetDecember 31, Year 2 and Year 1AssetsYear 2Year 1Current assets: Cash$201,000 $110,000 Accounts receivable, net 236,000 200,000 Inventory 158,000 190,000 Prepaid expenses 96,000 90,000 Total current assets 691,000 590,000 Plant and equipment, net 842,000 920,000 Total assets$1,533,000 $1,510,000 Liabilities and Stockholders' Equity Current liabilities: Accounts payable$173,000 $150,000 Accrued liabilities 36,000 40,000 Notes payable, short term 88,000 90,000 Total current liabilities 297,000 280,000 Bonds payable 170,000 170,000 Total liabilities 467,000 450,000 Stockholders' equity: Common stock, $3 par
value 210,000 210,000 Additional paid-in capital 60,000 60,000 Retained earnings 796,000 790,000 Total stockholders' equity 1,066,000 1,060,000 Total liabilities & stockholders' equity$1,533,000 $1,510,000 Income StatementFor the Year Ended December 31, Year 2Sales (all on account)$1,410,000 Cost of goods sold 850,000 Gross margin 560,000 Operating expenses 525,077 Net operating income 34,923 Interest expense 16,000 Net income before taxes 18,923 Income taxes (35%) 6,623 Net income$12,300 Dividends on common stock during Year 2 totaled $6,300. The market price of common stock at the end of Year 2 was $1.78 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 thecompany's earnings per share for Year 2?e. What is the company's price-earnings ratio for Year 2?f. What is thecompany's dividend payout ratio for Year 2?g. What is thecompany's dividend yield ratio for Year 2?h. 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 ÷ Interest expense
= $34,923 ÷ $16,000 = 2.18 (rounded)
b.
Debt-to-equity ratio = Total liabilities ÷ Stockholders' equity
= $467,000 ÷ $1,066,000 = 0.44 (rounded)
c.
Equity multiplier = Average total assets* ÷ Average stockholders' equity*
= $1,521,500÷$1,063,000 = 1.43 (rounded)
*Average total assets = ($1,533,000 + $1,510,000) ÷ 2 = $1,521,500
**Average stockholders' equity = ($1,066,000 + $1,060,000) ÷ 2 = $1,063,000
d.
Earnings per share = Net Income ÷ Average number of common shares outstanding*
= $12,300 ÷ 70,000 shares = $0.18 per share (rounded)
*Number of common shares outstanding = Common stock ÷ Par value
= $210,000 ÷ $3 per share = 70,000 shares
e.
Price-earnings ratio = Market price per share ÷ Earnings per share
= $1.78 ÷ $0.18 = 9.89 (rounded)
f.
Dividend payout ratio = Dividends per share* ÷ Earnings per share
= $0.09 ÷ $0.18 = 50.0% (rounded)
*Dividends per share = Common dividends ÷ Common shares (see above)
= $6,300 ÷ 70,000 shares = $0.09 per share (rounded)
g.
Dividend yield ratio = Dividends per share* ÷ Market price per share
= $0.09 ÷ $1.78 = 5.06% (rounded)
*Dividends per share = Common dividends ÷ Common shares (see above)
= $6,300 ÷ 70,000 shares = $0.09 per share (rounded)
h.
Book value per share = Common stockholders' equity ÷ Number of common shares outstanding*
= $1,066,000 ÷ 70,000 shares = $15.23 per share (rounded)
*Number of common shares outstanding = Common stock ÷ Par value
= $210,000 ÷ $3 per share = 70,000 shares
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