Question

Simon Company’s year-end balance sheets follow.

At December 31	Current Yr			1 Yr Ago			2 Yrs Ago
Assets
Cash	$	31,100		$	34,700		$	37,800
Accounts receivable, net		89,300			64,900			57,600
Merchandise inventory		79,076			82,400			56,000
Prepaid expenses		10,274			9,438			4,264
Plant assets, net		315,250			253,562			224,336
Total assets	$	525,000		$	445,000		$	380,000
Liabilities and Equity
Accounts payable	$	132,032		$	72,949		$	49,658
Long-term notes payable secured by mortgages on plant assets		97,713			105,421			82,300
Common stock, $10 par value		162,500			162,500			162,500
Retained earnings		132,755			104,130			85,542
Total liabilities and equity	$	525,000		$	445,000		$	380,000

The company’s income statements for the Current Year and 1 Year Ago, follow.

For Year Ended December 31	Current Yr						1 Yr Ago
Sales				$	682,500					$	529,550
Cost of goods sold	$	416,325					$	344,208
Other operating expenses		211,575						133,976
Interest expense		11,603						12,180
Income tax expense		8,873						7,943
Total costs and expenses					648,376						498,307
Net income				$	34,124					$	31,243
Earnings per share				$	2.10					$	1.92

Additional information about the company follows.

Common stock market price, December 31, Current Year	$	30.00
Common stock market price, December 31, 1 Year Ago		28.00
Annual cash dividends per share in Current Year		0.22
Annual cash dividends per share 1 Year Ago		0.11

For both the Current Year and 1 Year Ago, compute the following ratios:

1. Return on common stockholders' equity.
2. Price-earnings ratio on December 31.
2a. Assuming Simon's competitor has a price-earnings ratio of 8, which company has higher market expectations for future growth?
3. Dividend yield

Answer 1

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