Question

Simon Company’s year-end balance sheets follow.

At December 31	Current Yr			1 Yr Ago			2 Yrs Ago
Assets
Cash	$	31,200		$	34,800		$	37,400
Accounts receivable, net		89,400			62,100			57,500
Merchandise inventory		50,220			82,300			50,000
Prepaid expenses		10,260			9,166			3,444
Plant assets, net		358,920			261,634			161,656
Total assets	$	540,000		$	450,000		$	310,000
Liabilities and Equity
Accounts payable	$	134,460		$	75,289		$	39,692
Long-term notes payable secured by mortgages on plant assets		101,520			104,535			67,140
Common stock, $10 par value		162,500			162,500			162,500
Retained earnings		141,520			107,676			40,668
Total liabilities and equity	$	540,000		$	450,000		$	310,000

The company’s income statements for the Current Year and 1 Year Ago, follow.

For Year Ended December 31	Current Yr						1 Yr Ago
Sales				$	702,000					$	535,500
Cost of goods sold	$	428,220					$	348,075
Other operating expenses		217,620						135,482
Interest expense		11,934						12,317
Income tax expense		9,126						8,033
Total costs and expenses					666,900						503,907
Net income				$	35,100					$	31,593
Earnings per share				$	2.16					$	1.94

Additional information about the company follows.

Common stock market price, December 31, Current Year	$	32.00
Common stock market price, December 31, 1 Year Ago		30.00
Annual cash dividends per share in Current Year		0.32
Annual cash dividends per share 1 Year Ago		0.16

For both the Current Year and 1 Year Ago, compute the following ratios:

1. Return on common stockholders' equity.
2. Price-earnings ratio on December 31.
2a. Assuming Simon's competitor has a price-earnings ratio of 8, which company has higher market expectations for future growth?
3. Dividend yield.

Answer 1