Question

Markus Company’s common stock sold for $1.50 per share at the end of this year. The company paid a common stock dividend of $0.39 per share this year. It also provided the following data excerpts from this year’s financial statements:     

	Ending Balance		Beginning Balance
Cash	$	24,500	$	40,800
Accounts receivable	$	42,000	$	38,800
Inventory	$	42,400	$	42,000
Current assets	$	108,900	$	121,600
Total assets	$	302,000	$	242,800
Current liabilities	$	46,500	$	31,500
Total liabilities	$	92,000	$	82,800
Common stock, $1 par value	$	107,000	$	107,000
Total stockholders’ equity	$	210,000	$	160,000
Total liabilities and stockholders’ equity	$	302,000	$	242,800

     

	This Year
Sales (all on account)	$	480,000
Cost of goods sold	$	278,400
Gross margin	$	201,600
Net operating income	$	32,500
Interest expense	$	2,000
Net income	$	21,350

A. What is the earnings per share? (Round your answer to 2 decimal places.)

B. What is the dividend payout ratio and the dividend yield ratio? (Do not round intermediate calculations. Round your answer to the nearest whole percentage place. i.e., 0.1234 should be considered as 12%.)

C. 10. What is the inventory turnover and the average sale period? (Use 365 days in a year. Round your intermediate and final answers to 2 decimal places.)

D. What is the company’s operating cycle?

Answer 1

Answer:

A)

Earnings per Share                    =   Net Income / Total Number of Common shares Outstanding                   =      $ 21,350 / 107,000 shares                   =      0.20 per Share

Earnings per Share    =    $ 0.20 per Share

B)

Dividend Payout Ratio                  = Dividend per share / Earnings per share                  =    $ 0.39 / $ 0.20                  =   1.95

Dividend Payout Ratio    =   1.95 (or) 195%

Dividend Yield Ratio             =   Dividend per share / Market price per share             =     $ 0.39 / $ 1.50             =    26%

Dividend Yield Ratio   =    26%

C)

Inventory turnover ratio                    = Cost of goods sold / Average inventory                    =   $ 278,400 / ($ 42,400 + $ 42,000 ) / 2                    =   $ 278,400 / $ 42,200                    =   6.60

Inventory turnover ratio   =   6.60

Average sale period                     = 365 days / Inventory turnover ratio                     = 365 / 6.60                     = 55.30 days

Average sale period = 55.30 days

D)

Accounts receivable Turnover                =   Sales on account / Average Account Receivable                =   $ 480,000 / ($ 42,000 + $ 38,800 ) / 2                =   $ 480,000 / $ 40,400                =    11.88

Average Collection Period                 = 365 / Accounts receivable Turnover                 = 365 / 11.88                 = 30.72 days

Operating Cycle              =   Collection Period + Sale Period              = 30.72 + 55.30               = 86.02 days

Operating Cycle    =   86.02 days