Question

WIPER INC. Condensed Balance Sheets December 31, 2020, 2019, 2018 (in millions) Current assets Other assets Total assets Current liabilities Long-term liabilities Stockholders' equity Total liabilities and stockholders' equity 2020 $ 821 2,432 $3,253 $ 596 1,631 1,026 $3,253 2019 $1,061 1,939 $3,000 $ 849 1,106 1,045 $3,000 2018 $ 923 1,738 $2,661 $ 751 973 937 $2,661 WIPER INC. Selected Income Statement and Other Data For the year Ended December 31, 2020 and 2019 (in millions) 2020 2019 Income statement data: Sales Operating income Interest expense Net income Other data: Average number of common shares outstanding Total dividends paid $3,069 315 103 248 $2,932 329 84 243 43.2 $ 69.0 48.6 $ 54.2 Required: a. Calculate return on investment, based on net income and average total assets, for 2020 and 2019. b. Calculate return on equity for 2020 and 2019. c. Calculate working capital and the current ratio for each of the past three years. d. Calculate earnings per share for 2020 and 2019. e. If Wiper's stock had a price/earnings ratio of 13 at the end of 2020, what was the market price of the stock? f. Calculate the cash dividend per share for 2020 and the dividend yield based on the market price calculated in parte. g. Calculate the dividend payout ratio for 2020. h. Assume that accounts receivable at December 31, 2020, totaled $309 million. Calculate the number of days' sales in receivables at that date i. Calculate Wiper's debt ratio and debt/equity ratio at December 31, 2020 and 2019. j. Calculate the times interest earned ratio for 2020 and 2019.

Answer 1

ASSUMPTION: It is assumed that there is no preferred dividend

a) Return on Investment =(Net Income / Avg. Total assets)*100

2019: Net Income = 243 million

Avg. total Assets = (Total Assets in the Year 2019 + Total Assets in the Year 2018)/ No. of years

                            = (3000 + 2661)/2

                            = 2830.5

Return on Investment (ROI) = (243/2830.5)*100 = 0.08585 * 100 = 8.58%

2020: Net Income = 248 million

Avg. Total Assets = (Total Assets in Year 2020 + Total Assets in Year 2019 + Total Assets in Year 2018)/No. of years

                            = (3253 + 3000 + 2661)/3

                            = 2971.333

Return on Investment (ROI) = (248/2971.333)*100 = 0.08346 * 100 = 8.35%

b) Return on Equity = (Net Income - Preferred Dividends) / Shareholders Equity

It is assumed that their is no preferred dividend

2019:

Net income = 243 Million

Shareholders Equity = 1045

Return on equity (ROE) = 243/1045 = 0.232 = 23.2%

2020:

Net income = 248 Million

Shareholders Equity = 1026

Return on equity (ROE) = 248/1026 = 0.241= 24.1%

c)

Working capital = Current Assets - Current liabilities

Current Ratio = Current Assets / Current Liabilities

	2018	2019	2020
Current assets	923	1061	821
Current liabilities	751	849	596
Working capital	172	212	225
Current Ratio	1.229	1.249	1.377

d) Earnings per Share = Net profit after payment of dividend to preference shareholders / No. of Shares outstanding

2019: Earnings per share = 243 / 43.2 = 5.625

2020: Earnings Per Share = 248 / 48.6 = 5.102

e)

Price/Earnings ratio = 14

Earnings per share = 5.102

Market Price = 14 * 5.102 = 71.428

f)

Cash dividend Per Share = Total Dividend paid to Equity Shareholders / Avg. No. of Outstanding shares

= 69 / 43.2

= 1.597

Dividend yield = Dividend Per Share / Market Price Per Share

= 1.597 / 71.428

= 0.0223 = 2.23%

g) Dividend Payout Ratio = Total Dividends Paid to Shareholders / Net Income

Dividend Payout Ratio = 69 / 248 = 0.2782 = 27.82%

h) Days Sales in Receivables =  Accounts receivables / (Annual sales / 365 days)

Days Sales in Receivables = 309 / (3069 / 365) = 36.749 = 37 Days Approx.

i)

Debt Ratio = Total Liabilities / Total Assets

Debt to Equity Ratio = Total liabilities / Shareholders Equity

Total Liabilities = Current Liabilities + Non Current Liabilities

Total Assets = Current Assets + Non Current Assets

	2019	2020
Total Liabilities	1955	2227
Shareholders equity	1045	1026
Total assets	3000	3253
Debt Ratio	0.6516	0.6845
Debt to Equity Ratio	1.8708	2.1705

j) Times Interest Earned Ratio = Earnings Before Interest and Taxes / Total Interest payable

Earnings Before Interest and Taxes = Net income - Interest Expenses - Taxes

	2019	2020
Earnings before interest and Taxes	159	145
Net Income	243	248
Total interest Expenses	84	103
Times Interest Earned	1.8928	1.4077