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​(Evaluating profitability​) Last​ year, Stevens Inc. had sales of ​$399,000​, with a cost of goods sold...

​(Evaluating profitability​) Last​ year, Stevens Inc. had sales of ​$399,000​, with a cost of goods sold of $119,000. The​ firm's operating expenses were $125,000​, and its increase in retained earnings was ​$58,000. There are currently 22,100 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?

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Answer #1

a.

Net income = dividends*shares+increase in retained earnings =22100*1.58+58000=92918

PBT = Net income/(1-tax rate) = 92918/(1-0.34)=140784.848

Gross profit = revenues-COGS = 399000-119000=280000

Operating profit = gross profit-operating expenses = 280000-125000=155000

Interest = Operating profit-PBT=155000-140784.848=14215.152

Income statement

revenues 399000

-COGS (119000)

=Gross profit 280000

-operating expenses (125000)

=Operating profit 155000

-Interest (14215.152)

=PBT 140784.848

-taxes (47866.848)

=Net income 92918

b

Operating profit margin = Operating profit/revenues = 155000/399000=38.85%

c

TIE = Operating profit /interest = 155000/14215.152=10.903

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