Question

At December 31	2017			2016			2015
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, 2017 and 2016, follow.

For Year Ended December 31	2017						2016
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, 2017	$	30.00
Common stock market price, December 31, 2016		28.00
Annual cash dividends per share in 2017		0.29
Annual cash dividends per share in 2016		0.24

  
To help evaluate the company's profitability, compute the following ratios for 2017 and 2016:

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

Answer 1

Ans 1 Return on Common Stock Holders equity = Net Income /Average Common Stockholders' Equity Average Common Stockholders' Equity = (Beginning Common Stockholders' Equity + Ending Common Stockholders' Equity)/2 Particulars 2017 2016 Beginning Bal Common stock $1,63,500 $1,63,500 Retained earnings $1,04,750 $79,250 Total (A) $2,68,250 $2,42,750 Closing Bal Common stock $1,63,500 $1,63,500 Retained earnings $1,31,100 $1,04,750 Total (B) $2,94,600 $2,68,250 Average [(A+B)/2] $2,81,425 $2,55,500 Net Income $31,100 $29,375 Return on common stockholders' equi 11.05% 11.50% ($31100/$281425 ($29375/$255500] Ans 2 Price Earning Ratio = Price / Earning Per share 2017 Price $30.00 Earning Per share $1.90 Price Earning Ratio 15.79 ($30/$1.9) 2016 $28.00 $1.80 15.56 ($28/$1.8] Ans 3 Dividend Yield : Dividend per share / Price per share 2017 Dividend per share $0.29 Price $30.00 Dividend Yield 0.97% ($ 0.29/$30] 2016 $0.24 $28.00 0.86% ($0.24/$28]