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 810,000 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 the year was $18.50. 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	$	2,546		$	2,770
Accounts receivable, net		12,400			9,150
Inventory		9,750			8,240
Prepaid expenses		1,810			2,120
Total current assets		26,506			22,280
Property and equipment:
Land		6,100			6,100
Buildings and equipment, net		19,300			19,100
Total property and equipment		25,400			25,200
Total assets	$	51,906		$	47,480
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable	$	9,600		$	8,350
Accrued liabilities		620			750
Notes payable, short term		310			310
Total current liabilities		10,530			9,410
Long-term liabilities:
Bonds payable		6,250			6,250
Total liabilities		16,780			15,660
Stockholders' equity:
Common stock		810			810
Additional paid-in capital		4,250			4,250
Total paid-in capital		5,060			5,060
Retained earnings		30,066			26,760
Total stockholders' equity		35,126			31,820
Total liabilities and stockholders' equity	$	51,906		$	47,480

Weller Corporation Comparative Income Statement and Reconciliation (dollars in thousands)
	This Year			Last Year
Sales	$	80,000		$	75,000
Cost of goods sold		52,500			48,500
Gross margin		27,500			26,500
Selling and administrative expenses:
Selling expenses		8,600			8,100
Administrative expenses		12,100			11,100
Total selling and administrative expenses		20,700			19,200
Net operating income		6,800			7,300
Interest expense		750			750
Net income before taxes		6,050			6,550
Income taxes		2,420			2,620
Net income		3,630			3,930
Dividends to common stockholders		324			648
Net income added to retained earnings		3,306			3,282
Beginning retained earnings		26,760			23,478
Ending retained earnings	$	30,066		$	26,760

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 answer to 2 decimal places.)

5. Book value per share. (Round your answer to 2 decimal places.)

Answer 1

1. Earnings per share = Net income - preferred stock dividend / Number of equity shares outstanding

Net income for this year = $ 3630000

Number of equity shares outstanding = 810000

therefore Earnings per share = 3630000/ 810000 = $ 4.48 per share

2. Price - earnings ratio = Market price per share / Earnings per share

Market value of company's common stock at the end of the year = $ 18.5

Earnings per share = $ 4.48( calculated on previous question)

Therefore price - earnings ratio = 18.5 / 4.48 = 4.13

3. Dividend payout ratio = (Dividend per share / Earnings per share) * 100

Dividend per share = $.40 per share

earnings per share = $ 4.48 ( calculated as per Question 1)

Therefore Dividend payout ratio = (.40 / 4.48 ) * 100 = 8.93%

4. Dividend yield ratio = (Dividend per share / market value per share) * 100

Dividend per share = $ .40 per share

Market value per Share = $ 18.5 per share

Therefore Dividend yield ratio = (.40 / 18.5) * 100 = 2.16%

5. Book value per share = Total stock holders equity / Number of shares of common stock outstanding

Total stock holders equity = $ 35126000 (given in the question itself)

Number of common stock outstanding = 810000

Book value per share = 35126000 / 810000 = $ 43.37