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 600,000 shares of common stock were outstanding. The interest rate on the bond payable was 10%, 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 this year was $22. 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	$	1,180		$	1,340
Accounts receivable, net		9,800			7,000
Inventory		12,900			11,400
Prepaid expenses		720			500
Total current assets		24,600			20,240
Property and equipment:
Land		9,500			9,500
Buildings and equipment, net		43,756			40,128
Total property and equipment		53,256			49,628
Total assets	$	77,856		$	69,868
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable	$	18,900		$	17,900
Accrued liabilities		1,040			830
Notes payable, short term		0			200
Total current liabilities		19,940			18,930
Long-term liabilities:
Bonds payable		9,700			9,700
Total liabilities		29,640			28,630
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		42,216			35,238
Total stockholders' equity		48,216			41,238
Total liabilities and stockholders' equity	$	77,856		$	69,868

Weller Corporation Comparative Income Statement and Reconciliation (dollars in thousands)
	This Year			Last Year
Sales	$	70,000		$	65,000
Cost of goods sold		39,000			39,000
Gross margin		31,000			26,000
Selling and administrative expenses:
Selling expenses		11,400			10,600
Administrative expenses		6,600			6,100
Total selling and administrative expenses		18,000			16,700
Net operating income		13,000			9,300
Interest expense		970			970
Net income before taxes		12,030			8,330
Income taxes		4,812			3,332
Net income		7,218			4,998
Dividends to common stockholders		240			600
Net income added to retained earnings		6,978			4,398
Beginning retained earnings		35,238			30,840
Ending retained earnings	$	42,216		$	35,238

Required:

Compute the following financial ratios for this year:

1. Times interest earned ratio.

2. Debt-to-equity ratio.

3. Equity multiplier.

(For all requirements, round your answers to 2 decimal places.)

Answer 1

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