Question

Comparative financial statements for Weller Corporation, a merchandising company, for the year ending December 31 appear below. The company did not issue any new common stock during the year. A total of 850,000 shares of common stock were outstanding. The interest rate on the bonds, which were sold at their face value, was 12%. The income tax rate was 40% and the dividend per share of common stock was $0.40 this year. The market value of the company’s common stock at the end of the year was $20.50. All of the company’s sales are on account.

Weller Corporation Comparative Balance Sheet (dollars in thousands)
	This Year			Last Year
Assets
Current assets:
Cash	$	1,810		$	710
Accounts receivable, net		12,800			10,000
Inventory		9,950			8,400
Prepaid expenses		1,850			2,200
Total current assets		26,410			21,310
Property and equipment:
Land		6,500			6,500
Buildings and equipment, net		19,700			19,500
Total property and equipment		26,200			26,000
Total assets	$	52,610		$	47,310
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable	$	10,000		$	8,550
Accrued liabilities		700			950
Notes payable, short term		350			350
Total current liabilities		11,050			9,850
Long-term liabilities:
Bonds payable		5,000			5,000
Total liabilities		16,050			14,850
Stockholders' equity:
Common stock		850			850
Additional paid-in capital		4,450			4,450
Total paid-in capital		5,300			5,300
Retained earnings		31,260			27,160
Total stockholders' equity		36,560			32,460
Total liabilities and stockholders' equity	$	52,610		$	47,310

Weller Corporation Comparative Income Statement and Reconciliation (dollars in thousands)
	This Year			Last Year
Sales	$	84,000		$	79,000
Cost of goods sold		54,500			50,500
Gross margin		29,500			28,500
Selling and administrative expenses:
Selling expenses		9,000			8,500
Administrative expenses		12,500			11,500
Total selling and administrative expenses		21,500			20,000
Net operating income		8,000			8,500
Interest expense		600			600
Net income before taxes		7,400			7,900
Income taxes		2,960			3,160
Net income		4,440			4,740
Dividends to common stockholders		340			595
Net income added to retained earnings		4,100			4,145
Beginning retained earnings		27,160			23,015
Ending retained earnings	$	31,260		$	27,160

Required:

Compute the following financial data for this year:

1.	Earnings per share. (Round your answer to 2 decimal places.)

Earnings per share

$3.4

2.	Price-earnings ratio. (Round your intermediate calculations and final answer to 2 decimal places.)

Price-earnings ratio

76.87

3.	Dividend payout ratio. (Round your intermediate calculations and final answer to 2 decimal places.)

Dividend payout ratio

45.00

%

       

4.	Dividend yield ratio. (Round your intermediate calculations and final answer to 2 decimal places.)

Dividend yield ratio

54.80

%

  

5.	Book value per share. (Round your answer to 2 decimal places.)

Book value per share

$4.89

Answer 1

Earning Per share = Net income / Average number of shares outstanding

Earning Per share = $4,440,000/850,000

Earning Per share = $5.22

Price Earning Ratio = Market Value per Share / Earnings per Share

Price Earning Ratio = $20.50 / $5.22

Price Earning Ratio = 3.93

Dividend payout ratio = Total Dividends/ Net Income

Dividend payout ratio = $340,000/$4,440,000

Dividend payout ratio = 7.66%

Dividend Yield Ratio = Dividend per share/current share price

Dividend Yield Ratio = ($340,000/850,000)/$20.50

Dividend Yield Ratio = 1.95%

Book value per share = common stockholders equity / number of shares

Book value per share = $36,560,000/850,000

Book value per share = $43.01

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