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Problem 2-18 Price-earnings ratio [LO2]

Botox Facial Care had earnings after taxes of $280,000 in 2009 with200,000 shares of stock outstanding. The stock price was $30.80. In2010, earnings after taxes increased to $320,000 with the same200,000 shares outstanding. The stock price was $40.00.

(a)

Compute earnings per share and the P/E ratio for 2009. The P/Eratio equals the stock price divided by earnings per share.(Enter only numeric values. Round intermediate calculations and EPSanswer to 2 decimal places. Omit the "$" sign in yourresponse.)
2009
Earnings per share $
P/E ratio
(b)

Compute earnings per share and the P/E ratio for 2010. (Enter only numericvalues. Round intermediatecalculations and EPS answer to 2decimal places. Omit the "$" sign in your response.)
2010
Earnings per share $
P/E ratio
(c)

Give a general explanation of why the P/E ratio changed. (Round yourintermediate calculations and final answers to 2 decimalplaces. Omit the "%" sign inyour response.)

The stock price (Click to select)decreasedincreased by% while EPS only (Click to select)decreasedincreased %.

Problem 2-17 Earnings per share and retained earnings [LO1, 3]

Quantum Technology had $640,000 of retained earnings on December31, 2010. The company paid common dividends of $30,000 in 2010 andhad retained earnings of $500,000 on December 31, 2009.

(a)

How much did Quantum Technology earn during 2010? (Omit the "$" sign in your response.)
Earnings available to common stockholders $
(b)

What would earnings per share be if 40,000 shares of common stockwere outstanding? (Roundyour answer to 2 decimal places. Omit the "$" sign in your response.)
Earnings per share $

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Elin Hessel
Elin HesselLv2
28 Sep 2019

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Lundberg Corporation's most recent balance sheet and incomestatement appear below: Statement of Financial Position December 31, Year 2 andYear 1 (in thousands of dollars) Year 2 Year 1 Asset: Current assets: Cash $ 160 $ 170 Accounts receivable 270 280 Inventory 170160 Prepaid expenses 25 25 Total currentassets 625 635 Plant and equipment, net 954 934 Total assets $ 1,579 $ 1,569 Liabilitiesand stockholders' equity: Current liabilities: Accounts payable $ 220 $ 210 Accruedliabilities 110 110 Notes payable, short term 160 170 Total current liabilities 490 490 Bondspayable 250 300 Total liabilities 740 790 Stockholders' equity: Preferred stock, $100par value, 10% 260 260 Common stock, $1 par value 100100 Additional paid-in capital--common stock 110 110 Retained earnings 369 295 Totalstockholders' equity 839 765 Total liabilities andstockholders' equity $ 1,579 $ 1,555 Income Statement For the YearEnded December 31, Year 2 (in thousands of dollars) Sales (all on account) $ 1,480 Cost ofgoods sold 868 Gross margin 612 Selling andadministrative expenses 334 Net operating income 278 Interest expense 49 Net income before taxes229 Income taxes (30%) 69 Net income $ 160 Dividends on commonstock during Year 2 totaled $60 thousand. The market price ofcommon stock at the end of Year 2 was $9.32 per share. Required: a. Compute the gross marginpercentage for Year 2. (Round your answer to 1 decimal place. Omitthe "%" sign in your response.) Grossmargin percentage % b. Compute the earnings per share(of common stock) for Year 2.(Round your answer to 2 decimalplaces. Omit the "$" sign in your response.) Earnings per share $ c. Compute theprice-earnings ratio for Year 2. (Do not round intermediatecalculations. Round your answer to 1 decimal place.) Price-earnings ratio d. Compute thedividend payout ratio for Year 2. (Do not round intermediatecalculations. Round your answer to 1 decimal place. Omit the "%"sign in your response.) Dividend payoutratio % e. Compute the dividend yield ratio for Year2. (Round your answer to 2 decimal places. Omit the "%" sign inyour response.) Dividend yield ratio % f. Compute the return on total assets for Year 2. (Donot round intermediate calculations. Round your answer to 2 decimalplaces. Omit the "%" sign in your response.) Return on total assets % g. Compute thereturn on common stockholders' equity for Year 2. (Round youranswer to 2 decimal places. Omit the "%" sign in your response.) Return on common stockholders' equity % h. Compute the book value per share for Year 2. (Roundyour answer to 2 decimal places. Omit the "$" sign in yourresponse.) Book value per share $ i. Compute the working capital for Year 2. (Input youranswer in thousands of dollars. Omit the "$" sign in yourresponse.) Working capital $ j. Compute the current ratio for Year 2. (Round your answer to 2decimal places.) Current ratio k. Compute the acid-test ratio for Year 2.(Round youranswer to 1 decimal place.) Acid-testratio l. Compute the accounts receivable turnover forYear 2. (Round your answer to 2 decimal places.) Accounts receivable turnover m. Computethe average collection period for Year 2. (Use 365 days in a year.Do not round intermediate calculations. Round your answer to onedecimal place.) Average collection perioddays n. Compute the inventory turnover for Year 2.(Round your answer to 2 decimal places. Omit the "$" sign in yourresponse.) Inventory turnover $ o. Compute the average saleperiod for Year 2. (Use 365 days in a year. Do not roundintermediate calculations. Round your answer to 1 decimal place.) Average sale period days p. Compute the times interest earned for Year 2.(Round your answer to 2 decimal places.) Times interest earned q.Compute the debt-to-equity ratio for Year 2. (Round your answer to2 decimal places.) Debt-to-equityratio

Recent financial statements for Madison Company follow:

Madison Company
Balance Sheet
June 30
Assets
Current assets:
Cash $ 22,000
Accounts receivable, net 250,000
Merchandise inventory 400,000
Prepaid expenses 9,000
Total currentassets 681,000
Plant and equipment,net 880,000
Total assets $ 1,561,000
Liabilitiesand Stockholders' Equity
Liabilities:
Current liabilities $ 210,000
Bonds payable, 11% 320,000
Totalliabilities 530,000
Stockholders’equity:
Common stock, $5 par value $ 180,000
Retained earnings 851,000
Total stockholders’equity 1,031,000
Total liabilitiesand stockholders' equity $ 1,561,000
Madison Company
Income Statement
For the Year Ended June 30
Sales $ 2,220,000
Cost of goodssold 1,200,000
Gross margin 1,020,000
Selling andadministrative expenses 650,000
Net operatingincome 370,000
Interestexpense 35,200
Net income beforetaxes 334,800
Income taxes 100,440
Net income $ 234,360

Account balances at the beginningof the company’s fiscal year were: accounts receivable, $160,000;and inventory, $300,000. All sales were on account.

Assume that Madison Company paid dividends of $3.25 per shareduring the year. Also assume that the company’s common stock had amarket price of $71.00 per share on June 30 and that there was nochange in the number of outstanding shares of common stock duringthe fiscal year.

Required:
Compute the following:
1.

Earnings per share. (Round your answerto 2 decimal places. Omit the "$" sign in yourresponse.)
Earnings pershare $
2.

Dividend payout ratio. (Round yourintermediate calculations to 2 decimal places and final answerto 1 decimal place.Omit the "%"sign in your response.)
Dividend payoutratio %
3. Dividend yield ratio.(Round your answer to 1 decimalplace.Omit the "%" sign in yourresponse.)
Dividend yieldratio %
4.

Price-earnings ratio. (Round yourintermediate calculations to 2 decimal places and final answerto 1 decimal place.)
Price-earningsratio

Comparative financial statements for Heritage Antiquing Servicesfor the fiscal year ending December 31 appear on the followingpage. The company did not issue any new common or preferred stockduring the year. A total of 600 thousand shares of common stockwere outstanding. The interest rate on the bond payable was 10%,the income tax rate was 40%, and the dividend per share of commonstock was $0.75. The market value of the company’s common stock atthe end of the year was $26. All of the company’s sales are onaccount.


Heritage Antiquing Services
Comparative Balance Sheet
(dollars in thousands)
This Year Last Year
Assets
Current assets:
Cash $ 1,080 $ 1,210
Accounts receivable, net 9,000 6,500
Inventory 12,000 10,600
Prepaid expenses 600 500
Total current assets 22,680 18,810
Property and equipment:
Land 9,000 9,000
Buildings and equipment, net 36,800 38,000
Total property and equipment 45,800 47,000
Total assets $ 68,480 $ 65,810
Liabilities and Stockholders'Equity
Current liabilities:
Accounts payable $ 18,500 $ 17,400
Accrued payables 900 700
Notes payable, short term - 100
Total current liabilities 19,400 18,200
Long-term liabilities:
Bonds payable 8,000 8,000
Total liabilities 27,400 26,200
Stockholders' equity:
Preferred stock 1,000 1,000
Common stock 2,000 2,000
Additional paid-in capital 4,000 4,000
Total paid-incapital 7,000 7,000
Retained earnings 34,080 32,610
Total stockholders' equity 41,080 39,610
Total liabilities and stockholders' equity $ 68,480 $ 65,810


Heritage Antiquing Services
Comparative Income Statement and Reconciliation
(dollars in thousands)
This Year Last Year
Sales $ 66,000 $ 64,000
Costof goods sold 43,000 42,000
Gross margin 23,000 22,000
Selling and administrative expenses:
Selling expenses 11,500 11,000
Administrative expenses 7,400 7,000
Total selling and administrative expenses 18,900 18,000
Netoperating income 4,100 4,000
Interest expense 800 800
Netincome before taxes 3,300 3,200
Income taxes 1,320 1,280
Netincome 1,980 1,920
Dividends to preferred stockholders 60 400
Netincome remaining for common stockholders 1,920 1,520
Dividends to common stockholders 450 450
Netincome added to retained earnings 1,470 1,070
Retained earnings, beginning of year 32,610 31,540
Retained earnings, end of year $ 34,080 $ 32,610


Required:
Compute the following financial ratios for common stockholders forthis year:


1.

Gross margin percentage. (Round your answer to 1 decimalplace. Omit the "%" sign in your response.)


Gross margin percentage %


2.

Earnings per share of common stock. (Round your answerto 2 decimal places. Omit the "$" sign in yourresponse.)


Earnings $ pershare


3.

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


Price-earnings ratio


4.

Dividend payout ratio. (Roundyour intermediate calculations to 2decimal places and final answer to 1 decimal place. Omit the "%"sign in your response.)


Dividend payout ratio %


5.

Dividend yield ratio. (Round your answer to 1 decimalplace. Omit the "%" sign in your response.)


Dividend yield ratio %


6.

Return on total assets. (Round your answer to 1 decimalplace. Omit the "%" sign in your response.)


Return on total assets %


7.

Return on common stockholders' equity. (Round youranswer to 1 decimal place. Omit the "%" sign in yourresponse.)


Return on common stockholders' equity %


8.

Book value per share. (Round your answer to 2 decimalplaces. Omit the "$" sign in your response.)


Bookvalue $ pershare

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