Question

Comparative financial statements for Weller Corporation, a merchandising company, for the year ending December 31 appear...

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 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 the year was $28. 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 $ 1,170 $ 1,410
Accounts receivable, net 9,600 8,100
Inventory 13,800 11,000
Prepaid expenses 700 670
Total current assets 25,270 21,180
Property and equipment:
Land 10,100 10,100
Buildings and equipment, net 46,879 41,257
Total property and equipment 56,979 51,357
Total assets $ 82,249 $ 72,537
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable $ 18,600 $ 18,900
Accrued liabilities 1,050 800
Notes payable, short term 0 140
Total current liabilities 19,650 19,840
Long-term liabilities:
Bonds payable 9,300 9,300
Total liabilities 28,950 29,140
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 47,299 37,397
Total stockholders' equity 53,299 43,397
Total liabilities and stockholders' equity $ 82,249 $ 72,537
Weller Corporation
Comparative Income Statement and Reconciliation
(dollars in thousands)
This Year Last Year
Sales $ 70,000 $ 66,000
Cost of goods sold 34,000 36,000
Gross margin 36,000 30,000
Selling and administrative expenses:
Selling expenses 10,900 10,700
Administrative expenses 7,200 6,400
Total selling and administrative expenses 18,100 17,100
Net operating income 17,900 12,900
Interest expense 930 930
Net income before taxes 16,970 11,970
Income taxes 6,788 4,788
Net income 10,182 7,182
Dividends to common stockholders 280 525
Net income added to retained earnings 9,902 6,657
Beginning retained earnings 37,397 30,740
Ending retained earnings $ 47,299 $ 37,397

Required:

Compute the following financial ratios for this year:

1. Times interest earned ratio.

2. Debt-to-equity ratio.

3. Equity multiplier.

Homework Answers

Answer #2

Ans:

1

Times Interest Earned Ratio

19.25

2

Debt to Equity Ratio

0.54

3

Equity multiplier

1.54

(1) Times Interest earned ratio :-

Earnings before interest expense and income taxes / Interest Expense

$17900/$930 = 19.25

(2) Debt to Equity Ratio :-

Total Liabilities/Stockholders Equity

$28950/$53299 = 0.54

(3) Equity multiplier :-

total assets/stockholders equity

$82249/$53299 = 1.54

Hope this helped ! Let me know in case of any queries.

answered by: anonymous
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