Question

Five Measures of Solvency or Profitability

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

Bonds payable, 7%	$1,500,000
Preferred $10 stock, $100 par	174,000
Common stock, $14 par	1,126,650

Income before income tax was $399,000, and income taxes were $59,700, for the current year. Cash dividends paid on common stock during the current year totaled $77,256. The common stock was selling for $48 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

Req a.
Times Interest earned:
Net Income before tax		399000
Add: Interest (1500,000*7%)		105000
Net income before interest and tax	504000
Divide: Interest expenses		105000
Times Interest earned:		4.8
Req b.
Earnings per share on common stock:
Net Income before tax		399000
Less: Tax				-59700
After tax earnings			339300
Less: Preferred dividend (1740*10)	-17400
Earnings for common stockholders	321900
Divide: Number of shaes outstanding	80475
Earnings per share on common stock:	4
Req c.
Price Earnings ratio:
Market price per share		48
Divide: Earnings per share		4
Price Earnings ratio:			12
Req d.
Dividend per share of common stock:
Total Dividend paid			77256
Divide: Number of shares outstanding	80475
Dividend per share of common stock:	0.96
Req e.
Dividend Yield:
Dividend per share			0.96
Divide: Market price per share		48
Dividend Yield:			2%