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 700,000 shares of common stock were outstanding. The interest rate on the bonds, which were sold at their face value, was 10%. The income tax rate was 40% and the dividend per share of common stock was $0.40 this year. The market value of the company’s common stock at the end of the year was $27. 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	$	1,150		$	1,390
Accounts receivable, net		9,400			7,900
Inventory		12,700			12,500
Prepaid expenses		790			640
Total current assets		24,040			22,430
Property and equipment:
Land		10,400			10,400
Buildings and equipment, net		41,196			37,938
Total property and equipment		51,596			48,338
Total assets	$	75,636		$	70,768
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable	$	18,600		$	19,100
Accrued liabilities		1,060			900
Notes payable, short term		0			230
Total current liabilities		19,660			20,230
Long-term liabilities:
Bonds payable		8,700			8,700
Total liabilities		28,360			28,930
Stockholders' equity:
Common stock		2,000			2,000
Additional paid-in capital		4,000			4,000
Total paid-in capital		6,000			6,000
Retained earnings		41,276			35,838
Total stockholders' equity		47,276			41,838
Total liabilities and stockholders' equity	$	75,636		$	70,768

Weller Corporation Comparative Income Statement and Reconciliation (dollars in thousands)
	This Year			Last Year
Sales	$	67,000		$	66,000
Cost of goods sold		39,000			39,000
Gross margin		28,000			27,000
Selling and administrative expenses:
Selling expenses		10,900			10,800
Administrative expenses		6,700			6,000
Total selling and administrative expenses		17,600			16,800
Net operating income		10,400			10,200
Interest expense		870			870
Net income before taxes		9,530			9,330
Income taxes		3,812			3,732
Net income		5,718			5,598
Dividends to common stockholders		280			700
Net income added to retained earnings		5,438			4,898
Beginning retained earnings		35,838			30,940
Ending retained earnings	$	41,276		$	35,838

Required:

Compute the following financial ratios for this year:

1.	Times interest earned ratio. (Round your answer to 1 decimal place.)

	Times interest earned ratio 0.00

2.	Debt-to-equity ratio. (Round your answer to 2 decimal places.)

	Debt-to-equity ratio 0.00

3.	Equity multiplier. (Round your answer to 2 decimal places.)

	Equity multiplier 0.00

Answer 1

1)	Times Interest Earned Ratio = EBIT/ Interest expenses
	= $10400/870
	=12.0 times
2)	Debt To Equity Ratio = Total Debt / Total Equity
	= $28360/47276
	=0.6 times
3)	Equity Multiplier = Total Assets / Sharehloders equity
		=$75,636/47,276
		=1.60