Question

(Evaluating profitability​) Last​ year, Stevens Inc. had sales of ​$400,000​, with a cost of goods sold of ​$114,000. The​ firm's operating expenses were $127,000​, and its increase in retained earnings was ​$57,000. There are currently 22,200 common stock shares outstanding and the firm pays a ​$1.58 dividend per share.

a. Assuming the​ firm's earnings are taxed at 34 ​percent, construct the​ firm's income statement.

b. Compute the​ firm's operating profit margin.

c. What was the times interest​ earned?

a. Assuming the​ firm's earnings are taxed at 34 ​percent, construct the​ firm's income statement.  ​(Round to the nearest dollar.​ NOTE: You may input expense accounts as negative​ values.)

Stevens Inc. Income Statement
	$
Gross profits	$
Operating income (EBIT)	$
Earnings before taxes	$
Net income	$

Answer 1

Sales	400,000
COGS	114,000
Gross Profits	286,000
Op. expense	127,000
EBIT	159,000
Interest	19,491
EBT	139,509
Tax (34%)	47,433
Net Income	92,076
Dividends	35,076
Retained earnings	57,000

Dividends = 22,200 x 1.58 = 35,076

Net Income = Dividends + Retained earnings = 92,076

Tax = Net Income x 34% / (1 - 34%) = 47,433

EBT = Net Income + Tax = 139,509

EBIT = Sales - COGS - Operating Expense = 159,000

Interest expense = 159,000 - 139,509 = 19,491

b) Operating profit margin = EBIT / Sales = 39.75%

c) Times interest earned = EBIT / Interest = 8.16