Question

This is for question 14 only. Questions 12 and 13 lead to 14. I'm going to put question 15 in as well.

Use the information shown to calculate the following ratios for Allen Ales in 20Y6: asset turnover, return on total assets, return on stockholders’ equity, and return on common stockholders’ equity. The company paid $2,500 in preferred dividends for the year. Round ratios to one decimal place.

Sales	$345,900
Interest expense	15,700
Net income	275,300
Long-term investments:
Beginning of     year	67,500
End of year	68,300
Total assets:
Beginning of year	104,750
End of year	108,300
Common stockholders' equity:
Beginning of year	27,200
End of year	28,450
Total stockholders' equity:
Beginning of year	36,900
End of year	39,200

Use the information below to calculate the following ratios for Allen Ales in 20Y6: earnings per share on common stock, price-earnings ratio, dividends per share, and dividend yield. The company paid $2,500 in preferred dividends for the year. Round ratios to one decimal place.

Net income	$275,300
Shares of common stock outstanding	5,750 shares
Market price per share of common stock	$4.80
Dividends on common stock	$10,900

Compare the profitability ratios calculated in Exercises 25 and 26 to Allen Ales’ 20Y5 profitability ratios below. Identify areas that management has been less effective and areas that management has improved.

Asset turnover	8.6
Return on total assets	2.8
Return on stockholders' equity	7.8
Return on common stockholders' equity	9.6
EPS on common stock	$52.71
P/E ratio	0.1
Dividends per share	$2.29
Dividend yield	55.0%

Using the information below, determine the price-earnings ratio and dividend yield for each company. Round answers to one decimal place. Based on your answers, which company would you expect to have the best potential for future common stock price appreciation?

ABC Corp.		XYZ Corp.
Market price per share of common stock at year-end	$90.77		$84.27
Earnings per share	5.76		6.63
Dividends per share	2.28		2.14

Answer 1

Q1) Asset turnover ratio= Net sales/ average total assets

                                      =345900/ (104750+108300)/2

                                      =345900/106525= 3.2

Return on total assets= Net income/ average total assets

                                        = 275300/ 106525= 2.6

Return on stockholders equity= net income/ average stockholders equity

                                                       = 275300/(36900+39200)/2= 7.2

Return on common stockholders equity= (net income- preferred dividends)/ average common                                                                                             stockholders equity= (275300-2500)/ (27200+28450)/2

                                   =272800/ 27825= 9.8

Q2) Earnings per share on common stock= (Net income- preferred dividend)/ shares outstanding

                                                                         = 275300-2500/ 5750= 47.4$

Price earning ratio= market price/ EPS= 4.80/ 47.4= 0.1

Dividend per share= dividend/ no. of shares= 10900/ 5750= 1.9$

Dividend yield= dividend per share/ market price of share

                          =1.9/ 4.8= 0.4= 40%

Q3)

	20Y5	20Y6
Asset turnover	8.6	3.2
Return on total assets	2.8	2.6
Return on stockholders' equity	7.8	7.2
Return on common stockholders' equity	9.6	9.8
EPS on common stock	$52.71	$47.4
P/E ratio	0.1	0.1
Dividends per share	$2.29	$1.9
Dividend yield	55.0%	40%

In 20Y6, there has been decrease in Asset turn over, Return on total assets, Return on stockholders' equity, EPS on common stock, Dividends per share and Dividend yield. Therefore, company has been less effective in generating more revenue out of assets, in generating earnings and declaring dividends.

However, the company has marginally improved on Return on common stockholders' equity (ROE)