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 880,000 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 $22.00. 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	$	3,508		$	4,340
Accounts receivable, net		15,200			10,150
Inventory		10,100			8,520
Prepaid expenses		1,880			2,260
Total current assets		30,688			25,270
Property and equipment:
Land		6,800			6,800
Buildings and equipment, net		20,000			19,800
Total property and equipment		26,800			26,600
Total assets	$	57,488		$	51,870
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable	$	10,300		$	8,700
Accrued liabilities		760			1,100
Notes payable, short term		380			380
Total current liabilities		11,440			10,180
Long-term liabilities:
Bonds payable		8,750			8,750
Total liabilities		20,190			18,930
Stockholders' equity:
Common stock		880			880
Additional paid-in capital		4,600			4,600
Total paid-in capital		5,480			5,480
Retained earnings		31,818			27,460
Total stockholders' equity		37,298			32,940
Total liabilities and stockholders' equity	$	57,488		$	51,870

Weller Corporation Comparative Income Statement and Reconciliation (dollars in thousands)
	This Year			Last Year
Sales	$	87,000		$	82,000
Cost of goods sold		56,000			52,000
Gross margin		31,000			30,000
Selling and administrative expenses:
Selling expenses		9,300			8,800
Administrative expenses		12,800			11,800
Total selling and administrative expenses		22,100			20,600
Net operating income		8,900			9,400
Interest expense		1,050			1,050
Net income before taxes		7,850			8,350
Income taxes		3,140			3,340
Net income		4,710			5,010
Dividends to common stockholders		352			660
Net income added to retained earnings		4,358			4,350
Beginning retained earnings		27,460			23,110
Ending retained earnings	$	31,818		$	27,460

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 intermediate calculations and final answer to 2 decimal places.)

       

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

       

Answer 1

Solution :

(a) Earning per share = (Net Income - Prefence dividend) ÷ number of outstanding common shares

= ($4,710,000 - 0) ÷ 880,000

= $5.35

(b) Price earning ratio = Price of share ÷ Earning per share

= $22 ÷ $5.35

= 4.11

(c) Dividend payout ratio = (Dividend per share ÷ Earning per share)x 100

= ($0.40 ÷ $5.35) x 100

= 7.48%

(d) Dividend yield ratio = (Dividend per share ÷ price of share) x 100

= ($0.40 ÷ $22) x 100

= 1.82%

(e) Book value per share = Total stockholders' equity ÷ number of outstanding common shares

= $37,298,000 ÷ 880,000

= $42.38