Modern Building Supply sells various building materials toretail outlets. The company has just approached Linden State Bankrequesting a $300,000 loan to strengthen the Cash account and topay certain pressing short-term obligations. The company'sfinancial statements for the most recent two years follow:
Modern Building Supply: Balance sheet This Year Last year Assets Current assets: Cash $63,000 $135,000 Market securities 0 19,000 Accounts receivable, net 471,000 289,000 Inventory 935,000 597,000 Prepaid expenses 17,000 24,000 Total current assets 1,486,000 1,064,000 Plant and equipment, net 1,539,810 1,445,550 Total assets $3,025,810 $2,509,550 Liabilities and Stockholders' Equity Liabitities: Current liabilities $812,000 $438,000 Bonds payable, 10% 617,000 617,000 Total liabilities 1,429,000 1,055,000 Stockholders' equity: Pereferred stock, $25 par, 7% 255,000 255,000 Common stock, $10 par 507,000 507,000 Retained earnings 834,810 692,550 Total stockholders' equity 1,596,810 1,454,550 Total liabilities and stockholders equity $3,025,810 $2,509,550
Comparative income statemet annd reconciliation This year Last year Sales $5,007,000 $4,356,000 Cost of goods sold 3,866,000 3,443,000 Gross margin 1,414,000 913,000 Selling and administrative expenses 635,000 539,000 Net operating income 506,000 374,000 Interest expense 61,700 61,700 Net income before taxes 44,300 312,300 Income taxes (40%) 177,720 124,920 Net income 266,580 187,380 Dividends paid: Preferred dividends 17,850 17,850 Common dividends 106,470 70,980 Total dividends paid 124,320 88,830 Net income retained 142,260 98,550 Retained earnings, beginning of year 692,550 594,000 Retained earnings, end of year $834,810 $692,550
During the past year, the company has expanded the number oflines that it carries in order tostimulate sales and increaseprofits. It also moved aggressively to acquire new customers. Salesterms are 2/10, n/30. All sales are on account.
Assumer that the following ratios are typical of companines inthe building supply industry:
Current ratio 2.5 Acid-test ratio 1.2 Average collection period 18 days Average sale period 50 days Debt-to-equity ratio 0.75 Times interest earned ratio 6.0 Return on total assets 10% Price-earnings ratio 9
Assume that you have just inherited several hundred shares ofModern Building Supplu stock. Not being acquainted with thecompany, you decide to do some analytical work beofer making adecision about whether to retain or sell the stock you haveinherited.
Required:
1. You decide first to assess the well-being ofthe common stockholders.For both this year and last year, computethe following:
a. The earnings per share (Round your answer to2 decimal places.)
This year Last year Earnings per share $ ? $ ?
b. The dividend yield ratio for common stock.The company's common stock is currently selling for $33.39 pershare; last year it sold for $25.72 per share (Round youintermediate calculations to 2 decimal palces and final answers to1 decimal place.)
This year Last year Dividend yield ratio ? % ? %
c. The dividend payout ratio for common stock(Round you intermediate calculations to 2 decimal places and finalanswers to 1 decimal place.)
This year Last year Dividend payout raito ? % ? %
d. The price-earnings ratio (Round yourintermediate calculations to 2 decimal places and final answers to1 decimal place.)
This year Last year Price-earnings ratio ? times ? times
e. The book value per share of common stock(Round your ansers to 2 decimal places.)
This year Last year Book value per share $ ? $ ?
2. You decide next to assess the compay's rateof return. Compute the following for bothe this year and lastyear:
a. The return on total assets (Total assets atthe beginning of last year were $2,270,000) (Round yourintermediate to whole numbers and final answer to 1 decimalplace)
This year Last year Return on total assets ? % ?%
b.The return on common stockholders' equity.(Stockholders' equity at the beginning of last year was $1,319,000)(Round you intermediate calculations to whole numbers and finalanswer to 1 decimal place.)
This year Last year Return on common stockholders' equity ?% ?%
Modern Building Supply sells various building materials toretail outlets. The company has just approached Linden State Bankrequesting a $300,000 loan to strengthen the Cash account and topay certain pressing short-term obligations. The company'sfinancial statements for the most recent two years follow:
This Year | Last year | |
Assets | ||
Current assets: | ||
Cash | $63,000 | $135,000 |
Market securities | 0 | 19,000 |
Accounts receivable, net | 471,000 | 289,000 |
Inventory | 935,000 | 597,000 |
Prepaid expenses | 17,000 | 24,000 |
Total current assets | 1,486,000 | 1,064,000 |
Plant and equipment, net | 1,539,810 | 1,445,550 |
Total assets | $3,025,810 | $2,509,550 |
Liabilities and Stockholders' Equity | ||
Liabitities: | ||
Current liabilities | $812,000 | $438,000 |
Bonds payable, 10% | 617,000 | 617,000 |
Total liabilities | 1,429,000 | 1,055,000 |
Stockholders' equity: | ||
Pereferred stock, $25 par, 7% | 255,000 | 255,000 |
Common stock, $10 par | 507,000 | 507,000 |
Retained earnings | 834,810 | 692,550 |
Total stockholders' equity | 1,596,810 | 1,454,550 |
Total liabilities and stockholders equity | $3,025,810 | $2,509,550 |
This year | Last year | |
Sales | $5,007,000 | $4,356,000 |
Cost of goods sold | 3,866,000 | 3,443,000 |
Gross margin | 1,414,000 | 913,000 |
Selling and administrative expenses | 635,000 | 539,000 |
Net operating income | 506,000 | 374,000 |
Interest expense | 61,700 | 61,700 |
Net income before taxes | 44,300 | 312,300 |
Income taxes (40%) | 177,720 | 124,920 |
Net income | 266,580 | 187,380 |
Dividends paid: | ||
Preferred dividends | 17,850 | 17,850 |
Common dividends | 106,470 | 70,980 |
Total dividends paid | 124,320 | 88,830 |
Net income retained | 142,260 | 98,550 |
Retained earnings, beginning of year | 692,550 | 594,000 |
Retained earnings, end of year | $834,810 | $692,550 |
During the past year, the company has expanded the number oflines that it carries in order tostimulate sales and increaseprofits. It also moved aggressively to acquire new customers. Salesterms are 2/10, n/30. All sales are on account.
Assumer that the following ratios are typical of companines inthe building supply industry:
Current ratio | 2.5 |
Acid-test ratio | 1.2 |
Average collection period | 18 days |
Average sale period | 50 days |
Debt-to-equity ratio | 0.75 |
Times interest earned ratio | 6.0 |
Return on total assets | 10% |
Price-earnings ratio | 9 |
Assume that you have just inherited several hundred shares ofModern Building Supplu stock. Not being acquainted with thecompany, you decide to do some analytical work beofer making adecision about whether to retain or sell the stock you haveinherited.
Required:
1. You decide first to assess the well-being ofthe common stockholders.For both this year and last year, computethe following:
a. The earnings per share (Round your answer to2 decimal places.)
This year | Last year | |
Earnings per share | $ ? | $ ? |
b. The dividend yield ratio for common stock.The company's common stock is currently selling for $33.39 pershare; last year it sold for $25.72 per share (Round youintermediate calculations to 2 decimal palces and final answers to1 decimal place.)
This year | Last year | |
Dividend yield ratio | ? % | ? % |
c. The dividend payout ratio for common stock(Round you intermediate calculations to 2 decimal places and finalanswers to 1 decimal place.)
This year | Last year | |
Dividend payout raito | ? % | ? % |
d. The price-earnings ratio (Round yourintermediate calculations to 2 decimal places and final answers to1 decimal place.)
This year | Last year | |
Price-earnings ratio | ? times | ? times |
e. The book value per share of common stock(Round your ansers to 2 decimal places.)
This year | Last year | |
Book value per share | $ ? | $ ? |
2. You decide next to assess the compay's rateof return. Compute the following for bothe this year and lastyear:
a. The return on total assets (Total assets atthe beginning of last year were $2,270,000) (Round yourintermediate to whole numbers and final answer to 1 decimalplace)
This year | Last year | |
Return on total assets | ? % | ?% |
b.The return on common stockholders' equity.(Stockholders' equity at the beginning of last year was $1,319,000)(Round you intermediate calculations to whole numbers and finalanswer to 1 decimal place.)
This year | Last year | |
Return on common stockholders' equity | ?% | ?% |