Question

Comparative financial statements for Weller Corporation, a merchandising company, for the year ending December 31 appear below. The company did not issue any new common stock during the year. A total of 600,000 shares of common stock were outstanding. The interest rate on the bonds, which were sold at their face value, was 10%. The income tax rate was 40% and the dividend per share of common stock was $0.40 this year. The market value of the company's common stock at the end of the year was $28. All of the company's sales are on account. Weller Corporation Comparative Balance Sheet (dollars in thousands) This Year Last Year Assets Current assets: Cash Accounts receivable, net Inventory Prepaid expenses $ 1.160 $ 1.380 10.000 7.100 13,500 12,500 1690 1680 25,350 21,660 Total current assets Property and equipment: Land Buildings and equipment, net Total property and equipment Total assets 9,700 9,700 45.54641,118 55,246 50.818 $80.596 S72,478 Liabilities and Stockholders' Equity Current liabilities: Accounts payable Accrued liabilities Notes payable short term $ 19,100 $ 18,300 0 190 Total current liabilities Long-term liabilities: Bonds payable 20.160 8700 28 860 19,260 8.700 27.960 Total liabilities

Answer 1

Answer to Requirement 1.

Times Interest Earned ratio = Earnings before Interest and Taxes / Interest Expense
Times Interest Earned ratio = $13,300 / $870
Times Interest Earned ratio = 15.29 times

Answer to Requirement 2.

Debt to Equity Ratio = Total Liabilities / Total Equity
Debt to Equity Ratio = $28,860 / $51,736
Debt to Equity Ratio = 0.56 times

Answer to Requirement 3.

Equity Multiplier = Average Total Assets / Average Stockholders’ Equity

Average Total Assets = ($80,596 + $72,478)/ 2
Average Total Assets = $76,537

Average Stockholders’ Equity = ($51,736 + $44,518) / 2
Average Stockholders’ Equity = $48,127

Equity Multiplier = $76,537 / $48,127
Equity Multiplier = 1.59 times