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Simon Company’s year-end balance sheets follow. At December 31 2018 2017 2016 Assets Cash $ 31,800...

Simon Company’s year-end balance sheets follow.

At December 31 2018 2017 2016
Assets
Cash $ 31,800 $ 35,625 $ 37,800
Accounts receivable, net 89,500 62,500 50,200
Merchandise inventory 112,500 82,500 54,000
Prepaid expenses 10,700 9,375 5,000
Plant assets, net 278,500 255,000 230,500
Total assets $ 523,000 $ 445,000 $ 377,500
Liabilities and Equity
Accounts payable $ 129,900 $ 75,250 $ 51,250
Long-term notes payable secured by
mortgages on plant assets		 98,500 101,500 83,500
Common stock, $10 par value 163,500 163,500 163,500
Retained earnings 131,100 104,750 79,250
Total liabilities and equity $ 523,000 $ 445,000 $ 377,500


The company’s income statements for the years ended December 31, 2018 and 2017, follow.

For Year Ended December 31 2018 2017
Sales $ 673,500 $ 532,000
Cost of goods sold $ 411,225 $ 345,500
Other operating expenses 209,550 134,980
Interest expense 12,100 13,300
Income taxes 9,525 8,845
Total costs and expenses 642,400 502,625
Net income $ 31,100 $ 29,375
Earnings per share $ 1.90 $ 1.80


Additional information about the company follows.

Common stock market price, December 31, 2018 $ 30.00
Common stock market price, December 31, 2017 28.00
Annual cash dividends per share in 2018 0.29
Annual cash dividends per share in 2017 0.24

  
To help evaluate the company's profitability, compute the following ratios for 2018 and 2017:

1. Return on common stockholders' equity.
2. Price-earnings ratio on December 31.
3. Dividend yield.

Solutions

Expert Solution

(1)-Return on common stockholders' equity

Return on common stockholders' equity for 2018

Return on common stockholders' equity for 2018 = Net Income / Average Common stockholders equity

= $31,100 / [{($163,500 + $131,100) + ($163,500 + $104,750)}/2]

= $31,100 / [($294,600 + $268,250)/2]

= $31,100 / $281,425

= 0.1105 or

= 11.05%

Return on common stockholders' equity for 2017

Return on common stockholders' equity for 2017 = Net Income / Average Common stockholders equity

= $29,375 / [{($163,500 + $104,750) + ($163,500 + $79,250)}/2]

= $29,375 / [($268,250 + $242,750)/2]

= $29,375 / $255,500

= 0.1150 or

= 11.50%

(2)-Price-earnings ratio on December 31

Price-earnings ratio on December 31, 2018

Price-earnings ratio on December 31, 2018 = Market price per share / EPS

= $30.00 / $1.90

= 15.79 Times

Price-earnings ratio on December 31, 2017

Price-earnings ratio on December 31, 2017 = Market price per share / EPS

= $28.00 / $1.80

= 15.56 Times

(3)-Dividend Yield

Dividend Yield for 2018

Dividend Yield for 2018 = [Dividend per share / Market price per share] x 100

= [$0.29 / $30.00] x 100

= 0.97%     

Dividend Yield for 2017

Dividend Yield for 2017 = [Dividend per share / Market price per share] x 100

= [$0.24 / $28.00] x 100

= 0.86%

ekkarill92 answered 2 years ago
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