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 600,000 shares of common stock were outstanding. The interest rate on the bond payable was 10%, the income tax rate was 40%, and the dividend per share of common stock was $0.75 last year and $0.40 this year. The market value of the company’s common stock at the end of this year was $24. 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 | $ 1,200 | $ 1,260 |
| Accounts receivable, net | 10,200 | 6,700 |
| Inventory | 12,200 | 11,800 |
| Prepaid expenses | 650 | 550 |
| Total current assets | 24,250 | 20,310 |
| Property and equipment: | ||
| Land | 9,800 | 9,800 |
| Buildings and equipment, net | 51,566 | 41,888 |
| Total property and equipment | 61,366 | 51,688 |
| Total assets | $ 85,616 | $ 71,998 |
| Liabilities and Stockholders’ Equity | ||
| Current liabilities: | ||
| Accounts payable | $ 19,300 | $ 18,700 |
| Accrued liabilities | 1,100 | 740 |
| Notes payable, short term | 0 | 200 |
| Total current liabilities | 20,400 | 19,640 |
| Long-term liabilities: | ||
| Bonds payable | 8,700 | 8,700 |
| Total liabilities | 29,100 | 28,340 |
| 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 | 50,516 | 37,658 |
| Total stockholders’ equity | 56,516 | 43,658 |
| Total liabilities and stockholders’ equity | $ 85,616 | $ 71,998 |
Weller Corporation
Comparative Income Statement and Reconciliation (dollars in thousands)
| This Year | Last Year | |
|---|---|---|
| Sales | $ 75,000 | $ 65,000 |
| Cost of goods sold | 34,000 | 36,000 |
| Gross margin | 41,000 | 29,000 |
| Selling and administrative expenses: | ||
| Selling expenses | 11,200 | 10,700 |
| Administrative expenses | 7,100 | 6,400 |
| Total selling and administrative expenses | 18,300 | 17,100 |
| Net operating income | 22,700 | 11,900 |
| Interest expense | 870 | 870 |
| Net income before taxes | 21,830 | 11,030 |
| Income taxes | 8,732 | 4,412 |
| Net income | 13,098 | 6,618 |
| Dividends to common stockholders | 240 | 300 |
| Net income added to retained earnings | 12,858 | 6,318 |
| Beginning retained earnings | 37,658 | 31,340 |
| Ending retained earnings | $ 50,516 | $ 37,658 |
Required:
Compute the following financial ratios for this year:
a. Times interest earned ratio.
b. Debt-to-equity ratio.
c. Equity multiplier.
