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 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 this year was $23. 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		$	1,410
Accounts receivable, net		9,200			7,500
Inventory		13,000			11,400
Prepaid expenses		770			640
Total current assets		24,150			20,950
Property and equipment:
Land		9,800			9,800
Buildings and equipment, net		41,461			38,933
Total property and equipment		51,261			48,733
Total assets	$	75,411		$	69,683
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable	$	20,200		$	18,100
Accrued liabilities		1,020			850
Notes payable, short term		0			120
Total current liabilities		21,220			19,070
Long-term liabilities:
Bonds payable		8,700			8,700
Total liabilities		29,920			27,770
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		39,491			35,913
Total stockholders' equity		45,491			41,913
Total liabilities and stockholders' equity	$	75,411		$	69,683

Weller Corporation Comparative Income Statement and Reconciliation (dollars in thousands)
	This Year			Last Year
Sales	$	66,000		$	66,000
Cost of goods sold		40,000			39,000
Gross margin		26,000			27,000
Selling and administrative expenses:
Selling expenses		11,500			10,800
Administrative expenses		7,200			7,000
Total selling and administrative expenses		18,700			17,800
Net operating income		7,300			9,200
Interest expense		870			870
Net income before taxes		6,430			8,330
Income taxes		2,572			3,332
Net income		3,858			4,998
Dividends to common stockholders		280			525
Net income added to retained earnings		3,578			4,473
Beginning retained earnings		35,913			31,440
Ending retained earnings	$	39,491		$	35,913

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

times interest earned ratio	earnings before interest and tax / interest expenses
	this year ($)
net operating income	7300
interest expense	870
times interest earned ratio	8.39
Debt-to-equity ratio	total liabilities / total equity
	this year ($)
total liabilities	29920
total equity	45491
Debt-to-equity ratio	0.66
equity multiplier	total assets / total equity
	this year ($)
total assets	75411
total equity	45491
equity multiplier	1.66