Question

In: Accounting

QUALITATIVE ANALYSIS: 1) The following information was available for the year ended December 31, 2019: Net...

QUALITATIVE ANALYSIS:

1) The following information was available for the year ended December 31, 2019:

Net income ----------------------------- $ 180,000

Average total assets ------------------ 2,000,000

Dividends per share ------------------------- 1.44

Earnings per share -------------------------- 4.00

Market price per share at year-end ------- 72.00

Required:

a) Calculate the price/earnings ratio for 2019.

b) Calculate the dividend payout ratio for 2019.

c) Calculate the dividend yield for 2019.

2) The following information was available for the year ended December 31, 2019:

Earnings before interest and taxes (operating income) -------------- $ 97,500

Interest expense ---------------------------------------------------------- 15,000

Income tax expense ----------------------------------------------------- 22,500

Net income -------------------------------------------------------------- 60,000

Total assets at year-end --------------------------------------------------- 288,000

Total liabilities at year-end ------------------------------------------------ 216,000

Required:

a) Calculate the debt ratio at December 31, 2019.

b) Calculate the debt/equity ratio at December 31, 2019.

c) Calculate the time's interest earned for the year ended December 31, 2019.

Expert Solution

Ans. 1a	Price earnings ratio = Market price per share / Earnings per share
	$72.00 / $4.00
	18 times

Ans. 1b	Payout ratio = Dividends per share / Earnings per share
	$1.44 / $4.00
	36.00%

Ans. 1c	Dividend yield ratio = Dividend per share / Stock price per share
	$1.44 / $72.00
	2.00%

Ans. 2a	Debt ratio = Total liabilities / Total assets
	$216,000 / $288,000
	75.00%

Ans. 2b	Debt equity ratio = Total liabiltiies / Total stockholder's equity
	$216,000 / $72,000
	3 times

	*Total stockholder's equity = Total assets - total liabilities
	$288,000 - $216,000
	72000

Ans. 2c	Time interest earned = Earnings before interest and taxes / Interest expenses
	$97,500 / $15,000
	6.50	times

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