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 950,000 shares of common stock were outstanding. The interest rate on the bond payable was 12%, 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 $25.50. 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	$	770		$	1,810
Accounts receivable, net		15,900			9,000
Inventory		10,450			8,800
Prepaid expenses		1,950			2,400
Total current assets		29,070			22,010
Property and equipment:
Land		7,500			7,500
Buildings and equipment, net		20,700			20,500
Total property and equipment		28,200			28,000
Total assets	$	57,270		$	50,010
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable	$	11,000		$	9,050
Accrued liabilities		900			1,450
Notes payable, short term		450			450
Total current liabilities		12,350			10,950
Long-term liabilities:
Bonds payable		5,000			5,000
Total liabilities		17,350			15,950
Stockholders' equity:
Common stock		950			950
Additional paid-in capital		4,950			4,950
Total paid-in capital		5,900			5,900
Retained earnings		34,020			28,160
Total stockholders' equity		39,920			34,060
Total liabilities and stockholders' equity	$	57,270		$	50,010

Weller Corporation Comparative Income Statement and Reconciliation (dollars in thousands)
	This Year			Last Year
Sales	$	94,000		$	89,000
Cost of goods sold		59,500			55,500
Gross margin		34,500			33,500
Selling and administrative expenses:
Selling expenses		10,000			9,500
Administrative expenses		13,500			12,500
Total selling and administrative expenses		23,500			22,000
Net operating income		11,000			11,500
Interest expense		600			600
Net income before taxes		10,400			10,900
Income taxes		4,160			4,360
Net income		6,240			6,540
Dividends to common stockholders		380			760
Net income added to retained earnings		5,860			5,780
Beginning retained earnings		28,160			22,380
Ending retained earnings	$	34,020		$	28,160

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:

1.Earnings per share

Earnings per share = (Net income – Preferred dividends)/Average number of common shares outstanding

= $6,240 / 950

= $6.56

2.Price-earnings ratio

Price earnings ratio = Market price per share/Earnings per share

= $25.5 / $6.56

= 3.88 Times

3. Dividend yield ratio

Dividend yield ratio = Dividend per share / Market price per share

= ($0.75 per share / $25.50 per share) x 100

= 2.94%

4.Dividend payout ratio

Dividends payout ratio = Dividends per share/Earning per share

= ($0.75/ $6.56 per share) x 100

= 11.43%

5.Book value per share

Book value per share = Total Common stockholder’s Equity / Common shares outstanding

= 39,920 / 950 Shares

= $42.02 per share

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