Question

Financial statements for AAR Company appear below:

AAR Company Balance Sheet December 31
Current assets:
Cash and marketable securities	$21,000
Accounts receivable, net	160,000
Inventory	300,000
Prepaid expenses	9,000
Total current assets	490,000
Noncurrent assets:
Plant & equipment, net	810,000
Total assets	$1,300,000
Current liabilities:
Accounts payable	$75,000
Accrued liabilities	25,000
Notes payable, short term	100,000
Total current liabilities	200,000
Noncurrent liabilities:
Bonds payable	300,000
Total liabilities	500,000
Shareholders' equity:
Common shares, $5 par	100,000
Retained earnings	700,000
Total shareholders' equity	800,000
Total liabilities & shareholders' equity	$1,300,000

AAR Company Income Statement For the Year Ended December 31 (dollars in thousands)
Sales (all on account)	$2,100,000
Cost of goods sold	1,770,000
Gross margin	330,000
Operating expenses	130,000
Net operating income	200,000
Interest expense	50,000
Net income before taxes	150,000
Income taxes (30%)	45,000
Net income	$105,000

AAR Company paid dividends of $3.15 per share during the year. The market price of the company's shares at December 31 was $63 per share. Assets at the beginning of the year totalled $1,100,000, and shareholders' equity totalled $725,000. The balance of accounts receivable at the beginning of the year was $150,000. The balance in inventory at the beginning of the year was $250,000.

Required:

Compute the following:

1 Dividend payout ratio.
2 Dividend yield ratio.
3 Price-earnings ratio.
4 Return on total assets.

5 Return on common shareholders' equity.

6 Was financial leverage positive or negative for the year? Explain.

Answer 1

1)

2)

3)4)5)6)