Question

The financial statements for Castile Products, Inc., are given below:

Castile Products, Inc. Balance Sheet December 31
Assets
Current assets:
Cash				$	19,000
Accounts receivable, net					170,000
Merchandise inventory					310,000
Prepaid expenses					12,000
Total current assets					511,000
Property and equipment, net					890,000
Total assets				$	1,401,000
Liabilities and Stockholders' Equity
Liabilities:
Current liabilities				$	250,000
Bonds payable, 9%					360,000
Total liabilities					610,000
Stockholders’ equity:
Common stock, $5 par value				$	150,000
Retained earnings					641,000
Total stockholders’ equity					791,000
Total liabilities and equity				$	1,401,000

Castile Products, Inc. Income Statement For the Year Ended December 31
Sales	$	2,160,000
Cost of goods sold		1,180,000
Gross margin		980,000
Selling and administrative expenses		610,000
Net operating income		370,000
Interest expense		32,400
Net income before taxes		337,600
Income taxes (30%)		101,280
Net income	$	236,320

Account balances at the beginning of the year were: accounts receivable, $170,000; and inventory, $360,000. All sales were on account.

Assume that Castile Products, Inc., paid dividends of $2.25 per share during the year. Also assume that the company’s common stock had a market price of $60 at the end of the year and there was no change in the number of outstanding shares of common stock during the year.

Required:

Compute financial ratios as follows:

1.	Earnings per share. (Round your answer to 2 decimal places.)

      

2.	Dividend payout ratio. (Round your intermediate calculations to 2 decimal places. Round your final percentage answer to 1 decimal place (i.e., 0.1234 should be considered as 12.3%).)

       

3.	Dividend yield ratio. (Round your percentage answer to 1 decimal place (i.e., 0.1234 should be considered as 12.3%).)

       

4.	Price-earnings ratio. (Round your intermediate calculations to 2 decimal places and final answer to 1 decimal place.)

       

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

       

Answer 1

Solution:
1.	Earnings per share     $7.88
Working Notes:
	Earnings per share
	=Net income/Average number of common shares outstanding
	Average number of common shares outstanding
	=Total Common stock value /par value per share
	=$150,000/$5
	=30,000 shares
	Earnings per share
	=Net income/Average number of common shares outstanding
	=236,320/30,000
	=7.877333333
	=$7.88
2.	Dividend payout ratio    28.6%
Working Notes:
	Dividend payout ratio
	=Dividends paid per share/Earnings per share
	Dividends paid per share=$2.25
	Earnings per share = $7.88 as calculated above rounded to two decimal
	Dividend payout ratio
	=Dividends paid per share/Earnings per share
	=$2.25/$7.88
	=0.285532995
	=0.286
	=28.6%
3.	Dividend yield ratio = 3.8%
Working Notes:
	Dividend yield ratio
	=Dividends paid per share/Market price per share
	=$2.25/$60
	=0.0375
	=0.038
	=3.8%
4.	Price-earnings ratio 7.6
Working Notes:
	Price-earnings ratio
	=Market price per share/Earnings per share
	Earnings per share = $7.88 as calculated above rounded to two decimal
	Price-earnings ratio
	=Market price per share/Earnings per share
	=$60/$7.88
	=7.614213
	=7.6
5.	Book value per share     $26.37
Working Notes:
	Book value per share
	=Total stockholders' equity/Number of common shares outstanding
	Book value per share
	=791,000 /30,000
	=26.36666667
	=$26.37
	Number of common shares outstanding or
	Average number of common shares outstanding
	=Total Common stock value /par value per share
	=$150,000/$5
	=30,000 shares
Please feel free to ask if anything about above solution in comment section of the question.