Question

The following data are taken from the financial statements, determine for the current year the (a) return on total assets. (b) return on stockholders' equity (c) return on common stockholders' equity ( earnings per share on Goon stock. () price earningsrution common stock, and (1) dividendyold. The current market price per share of common stock in $25. Current Year $745,000 1,510,000 Preceding Year $820,000 1.400,000 140,000 400,000 Current assets Property, plant, and equipment Current abilities (non-interest-bearing) Long term labilities, 12% Preferred 10% stock Common stock, $25 par Retained eaming, beginning of year Net income for year Preferred dividends declared Common dividends declared 160.000 400.000 250,000 1.200,000 250.000 1.200.000 230,000 110.000 (25.000) (70,000) 160,000 155.000 (25.000) (60,000) Round dollar values to two decimal places and other final aners to one decimal place a. Return on total assets b. Return on stockholders' equity c. Return on common stockholders' equity d. Earnings per share on common stock e. Price-earnings ratio on common stock 1. Dividend yield

Answer 1

Workings Current Assets Property , plant and equipment Total assets Average total assets Current year Previous year $ 745,000 $ 820,000 $ 1,510,000 $ 1,400,000 $ 2,255,000 S 2,220,000 $ 2,237,500 (2255000+2220000)/2 Shareholders equity Current year Previous year Retained earnings beginning $ 230,000 $ 160,000 Net Income of the year $ 110,000 $ 155,000 Preferred dividend $ (25,000 $ (25,000) Common dividend $ (70,000 $ (60,000) Retained earnings closing $ 245,000 $ 230,000 Common stock $ 1,200,000 $ 1.200,000 Total stock holders equity S 1,445,000 S 1,430,000 Average total stockholders equity S 1,437,500 Average common stock $ 1,200,000 (a) Return on Total Assets Return on total assets = Net Income/Average total assets =110000/2237500 4.9% (b) Return on stock holders equity Return on stock holders equity = Net Income / Average stock holders equity =110000/1437500 7.7% (c) Return on common stock holders equity Return on common stock holders equity = (Net Income - Preferred dividend)/Average common stock =(110000-25000/1200000 7.1% d) Earnings per share on common stock Earnings per share = (Net Income - Preference dividend)/No: of Common shares =(110000-25000)/(1200000/25) S 1.77 e) Price-earnings ratio on common stock Price earning ratio = Market price / Earnings per share =25/1.77 14.12 f) Dividend Yield Dividend yield = Dividend per share / Current share price =(70000/480000)/25 0.6%