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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 1 year ago

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