Question

Ratios Compared with Industry Averages - Company X manufactures various plastic and synthetic products. Financial statement data for the firm is as follows:

2015
($ thousands, except Earnings per Share)
Sales revenue	$815,000
Cost of goods sold	540,000
Net income	50,500
Dividends	14,000
Earnings per share	4.04

COMPANY X
BALANCE SHEETS
($ IN THOUSANDS)
	DEC. 31, 2015	DEC. 31, 2014
ASSETS
Cash	$4,100	$2,700
Accounts receivable (net)	66,900	60,900
Inventory	148,000	140,000
TOTAL CURRENT ASSETS	219,000	203,600
Plant assets (net)	215,000	194,000
Other assets	5,300	3,900
TOTAL ASSETS	439,300	401,500
LIABILITIES AND STOCKHOLDER EQUITY
Notes payable - banks	$31,000	$25,000
Accounts payable	27,600	23,000
Accrued liabilities	25,100	24,800
TOTAL CURRENT LIABILITIES	83,700	72,800
10% Bonds payable	150,000	150,000
TOTAL LIABILITIES	233,700	222,800
Common stock, $10 par value (12,500,000 shares)	125,000	125,000
Retained earnings	80,600	53,700
TOTAL STOCKHOLDER EQUITY	205,600	178,700
TOTAL LIABILITIES AND STOCKHOLDER EQUITY	$439,300	$401,500

(a) Using the given data, calculate items 1 through 8 (numbered in the chart below) below for 2015? Compare the performance of Company X, with the following industry averages and comment on its operations? (Include formulas used to answer question).

MEDIAN RATIOS FOR MANUFACTURERS OF PLASTIC AND SYNTHETIC PRODUCTS
(#1) Quick ratio	1.2
(#2) Current ratio	1.9
(#3) Accounts receivable turnover	7.9 times
(#4) Inventory turnover	7.8 times
(#5) Debt to equity ratio	0.95
(#6) Gross profit margin ratio	32.7%
(#7) Return on sales	3.5%
(#8) Return on assets	6.3%

(b) Calculare the dividends paid per share of common stock. What was the dividend payout ratio? (Include formulas used to answer question)

(c) If the most recent price share of common stock is $47.75, what is the price-earnings ratio? The dividend yield? (Include formulas used to answer question)

Answer 1

NOTE: Current time is considered to be the end of 2015 (i.e December 2015)

Net Income = $ 50500000, Dividends = $ 14000000 and EPS = $ 4.04

Number of common stock outstanding = N = 50500000 / 4.04 = 12500000

Dividends per Share = DPS = Dividends / N = 14000000/12500000 = $ 1.12

Dividend Payout Ratio = DPS / EPS = 1.12 / 4.04 = 0.27723 or 27.72 % approximately

(c) Most Recent Stock Price = P0 = $ 47.75

PE Ratio = P0 / EPS = 47.75 / 4.04 = 11.8193 or 11.82 approximately.

Dividend Yield = DPS / P0 = 1.12 / 47.75 = 0.023455 or 2.345 % approximately