Question

Five Measures of Solvency or Profitability

The balance sheet for Garcon Inc. at the end of the current fiscal year indicated the following:

Bonds payable, 9%	$1,600,000
Preferred $5 stock, $50 par	262,000
Common stock, $13 par	183,924.00

Income before income tax was $446,400, and income taxes were $66,500 for the current year. Cash dividends paid on common stock during the current year totaled $47,820. The common stock was selling for $225 per share at the end of the year.

Determine each of the following. Round answers to one decimal place, except for dollar amounts which should be rounded to the nearest whole cent. Use the rounded answers for subsequent requirements, if required.

a. Times interest earned ratio		times
b. Earnings per share on common stock	$
c. Price-earnings ratio
d. Dividends per share of common stock	$
e. Dividend yield		%

Answer 1

a) Interest earned ratio

	Income before Income Taxes	4,46,400
Add:	Interest expense	1,44,000
	Income before interest & taxes	5,90,400

Interest Earned Ratio = Income before interest & taxes / Interest Expense = 590,400 / 144,000 = 4.10 Times

b) Earnings per share on common stock

Income before Income Taxes	4,46,400
Income Taxes	66,500
Net Income	3,79,900
Dividend on Preferred Stock	26,200
Income attributable to Common Stock	3,53,700.00
No. of Common Stock	14,148.00
Earning Per Share	25.00

c) Price-earnings ratio

Market Price of Share	225.00
Earning Per Share	25.00
P/E Ratio	9.00

d)Dividends per share of common stock

Total Dividend Paid	47,820.00
No. of Common Stock	14,148.00
Dividend Per Share	3.38

e) Dividend Yield (%)

Market Price of Share	225
Dividend Per Share	3.38
Dividend Yield (%)	1.50%