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 700,000 shares of common stock were outstanding. The interest rate on the bonds, which were sold at their face value, was 10%. 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 $24. 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	$	1,230		$	1,310
Accounts receivable, net		10,200			6,500
Inventory		12,700			11,600
Prepaid expenses		780			520
Total current assets		24,910			19,930
Property and equipment:
Land		9,200			9,200
Buildings and equipment, net		44,456			39,878
Total property and equipment		53,656			49,078
Total assets	$	78,566		$	69,008
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable	$	19,800		$	17,700
Accrued liabilities		930			770
Notes payable, short term		0			300
Total current liabilities		20,730			18,770
Long-term liabilities:
Bonds payable		8,700			8,700
Total liabilities		29,430			27,470
Stockholders' equity:
Common stock		2,000			2,000
Additional paid-in capital		4,000			4,000
Total paid-in capital		6,000			6,000
Retained earnings		43,136			35,538
Total stockholders' equity		49,136			41,538
Total liabilities and stockholders' equity	$	78,566		$	69,008

Weller Corporation Comparative Income Statement and Reconciliation (dollars in thousands)
	This Year			Last Year
Sales	$	68,000		$	64,000
Cost of goods sold		36,000			37,000
Gross margin		32,000			27,000
Selling and administrative expenses:
Selling expenses		10,900			10,500
Administrative expenses		7,100			6,300
Total selling and administrative expenses		18,000			16,800
Net operating income		14,000			10,200
Interest expense		870			870
Net income before taxes		13,130			9,330
Income taxes		5,252			3,732
Net income		7,878			5,598
Dividends to common stockholders		280			700
Net income added to retained earnings		7,598			4,898
Beginning retained earnings		35,538			30,640
Ending retained earnings	$	43,136		$	35,538

Required:

Compute the following financial ratios for this year:

Times interest earned ratio. (Round your answer to 1 decimal place.)

      

Debt-to-equity ratio. (Round your answer to 2 decimal places.)

      

Equity multiplier. (Round your answer to 2 decimal places.)

      

Answer 1

Times interest earned ratio. 16.1

Debt-to-equity ratio .60

Equity multiplier 1.60