Question

The financial statements for Castile Products, Inc., are given below:

Castile Products, Inc. Balance Sheet December 31
Assets
Current assets:
Cash	$	6,500
Accounts receivable, net		35,000
Merchandise inventory		70,000
Prepaid expenses		3,500
Total current assets		115,000
Property and equipment, net		185,000
Total assets	$	300,000
Liabilities and Stockholders' Equity
Liabilities:
Current liabilities	$	50,000
Bonds payable, 10%		80,000
Total liabilities		130,000
Stockholders’ equity:
Common stock, $5 par value		30,000
Retained earnings		140,000
Total stockholders’ equity		170,000
Total liabilities and stockholders’ equity	$	300,000

Castile Products, Inc. Income Statement For the Year Ended December 31
Sales	$	420,000
Cost of goods sold		292,500
Gross margin		127,500
Selling and administrative expenses		89,500
Net operating income		38,000
Interest expense		8,000
Net income before taxes		30,000
Income taxes (30%)		9,000
Net income	$	21,000

Account balances at the beginning of the year were: accounts receivable, $25,000; and inventory, $60,000. All sales were on account.

Assume that Castile Products, Inc., paid dividends of $2.10 per share during the year. Also assume that the company’s common stock had a market price of $42 at the end of the year and there was no change in the number of outstanding shares of common stock during the year.

Required:

Compute financial ratios as follows:

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

2. Dividend payout ratio. (Round your intermediate calculations to 2 decimal places. Round your percentage final answer to nearest whole number (i.e., 0.1234 should be entered as 12).)

3. Dividend yield ratio. (Round your intermediate calculations to 2 decimal places. Round your percentage final answer to nearest whole number (i.e., 0.1234 should be entered as 12).)

4. Price-earnings ratio. (Round your intermediate calculations to 2 decimal places. Round your answer to nearest whole number.)

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

Answer 1

Ans. 1	Earnings per share = Net income / Common stock outstanding
		$21,000 / 6,000
		$3.50	per share
	*Common stock outstanding =   Common stock / Par value
		$30,000 / $5
		6000
Ans. 2	Dividend payout ratio = Dividend per share / Earnings per share * 100
		$2.10 / $3.50 * 100
		60%
Ans. 3	Dividend yield ratio = Dividend per share / Market price per share * 100
		$2.10 / $42 * 100
		5%
Ans. 4	Price earnings ratio = Market price per share / Earnings per share
		$42 / $3.50
		12	times
Ans. 5	Book value per share =    Total stockholder's equity / Number of shares outstanding
		$170,000 / 6,000
		$28.33	per share