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 870,000 shares of common stock were outstanding. The interest rate on the bond payable was 12%, the income tax rate was 40%, and the dividend per share of common stock was $0.75 last year and $0.40 this year. The market value of the company’s common stock at the end of the year was $21.50. 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	$	2,242		$	3,130
Accounts receivable, net		15,100			10,100
Inventory		10,050			8,480
Prepaid expenses		1,870			2,240
Total current assets		29,262			23,950
Property and equipment:
Land		6,700			6,700
Buildings and equipment, net		19,900			19,700
Total property and equipment		26,600			26,400
Total assets	$	55,862		$	50,350
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable	$	10,200		$	8,650
Accrued liabilities		740			1,050
Notes payable, short term		370			370
Total current liabilities		11,310			10,070
Long-term liabilities:
Bonds payable		7,500			7,500
Total liabilities		18,810			17,570
Stockholders' equity:
Common stock		870			870
Additional paid-in capital		4,550			4,550
Total paid-in capital		5,420			5,420
Retained earnings		31,632			27,360
Total stockholders' equity		37,052			32,780
Total liabilities and stockholders' equity	$	55,862		$	50,350

Weller Corporation Comparative Income Statement and Reconciliation (dollars in thousands)
	This Year			Last Year
Sales	$	86,000		$	81,000
Cost of goods sold		55,500			51,500
Gross margin		30,500			29,500
Selling and administrative expenses:
Selling expenses		9,200			8,700
Administrative expenses		12,700			11,700
Total selling and administrative expenses		21,900			20,400
Net operating income		8,600			9,100
Interest expense		900			900
Net income before taxes		7,700			8,200
Income taxes		3,080			3,280
Net income		4,620			4,920
Dividends to common stockholders		348			696
Net income added to retained earnings		4,272			4,224
Beginning retained earnings		27,360			23,136
Ending retained earnings	$	31,632		$	27,360

Required:

Compute the following financial data for this year:

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

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

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

4. Dividend yield ratio. (Round your answer to 2 decimal places.)

5. Book value per share.

Answer 1

1) earnings per share =(net income - preference dividend)/outstanding shares of common stock

=( $4620000 - 0)/870000 = $5.31

2) price earnings ratio = market price per share/earnings per share

= $21.50/$5.31 = $4.05

3) dividend payout ratio = dividend per share/earnings per share

= $0.40/$5.31 = 7.53%

4) dividend yield ratio = dividend per share/market price per share

=$0.40/$21.50 = 1.86%

5) book value per share = (total stockholders equity - preferred equity)/outstanding shares of common stock

= $37052000/870000 = 42.5

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