Question

Presented here are summarized data from the balance sheets and income statements of Wiper Inc.:

WIPER INC.
Condensed Balance Sheets
December 31, 2020, 2019, 2018
(in millions)
	2020			2019			2018
Current assets	$	793		$	1,021		$	883
Other assets		2,428			1,935			1,734
Total assets	$	3,221		$	2,956		$	2,617
Current liabilities	$	592		$	845		$	742
Long-term liabilities		1,607			1,070			942
Stockholders’ equity		1,022			1,041			933
Total liabilities and stockholders' equity	$	3,221		$	2,956		$	2,617

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	$	3,065		$	2,928
Operating income		311			325
Interest expense		99			80
Net income		236			231
Other data:
Average number of common shares outstanding		42.8			48.2
Total dividends paid	$	65.0		$	53.8

Required:

1. Calculate return on investment, based on net income and average total assets, for 2020 and 2019.
2. Calculate return on equity for 2020 and 2019.
3. Calculate working capital and the current ratio for each of the past three years.
4. Calculate earnings per share for 2020 and 2019.
5. If Wiper's stock had a price/earnings ratio of 12 at the end of 2020, what was the market price of the stock?
6. Calculate the cash dividend per share for 2020 and the dividend yield based on the market price calculated in part e.
7. Calculate the dividend payout ratio for 2020.
8. Assume that accounts receivable at December 31, 2020, totaled $324 million. Calculate the number of days' sales in receivables at that date.
9. Calculate Wiper's debt ratio and debt/equity ratio at December 31, 2020 and 2019.
10. Calculate the times interest earned ratio for 2020 and 2019.

Answer 1

Values are in millions,

a)  Return on investment for 2020, 2019

Return on Investment = Net income / Average of total assets

Particulars	2020	2019
1. Net Income	236	231
A) Assets in the beginning	2956	2617
B) Assets in the end	3221	2956
2. Average of total assets[(A+B)/2]	3089	2787
Return on Investment (1/2)	7.64%	8.29%

b)  Return on equity for 2020, 2019

Return on equity = Net income/ Average Stockholders' equity

Particulars	2020	2019
1. Net income	236	231
a) Equity in beginning	1041	933
b) Equity at the end	1022	1041
2. Average of Shareholders equity[(a+b)/2]	1032	987
Return on equity(1/2)	22.87%	23.4%

c) Calculation of working capital and current ratio for 2018, 2019, 2020

Working capital = Total Current assets - Total Current Liabilities

Current ratio = Current assets/Current liabilities

Particulars	2020	2019	2018
1.Total Current assets	793	1021	883
2.Total Current liabilities	592	845	742
Working capital (1-2)	201	176	141
Current ratio (1/2)	1.34	1.21	1.19

d) Calculation of Earnings per share for 2020 and 2019

Earnings per share is the earnings made per share

Earnings per share = Net income / Average number of Shares outstanding

Particulars	2020	2019
1. Net Income	236	231
2. Average number of Shares outstanding	42.8	48.2
Earnings per share (1/2)	$5.51	$4.79

e) Market price of the stock for the year 2020

Price earnings ratio = 12%

Earnings per share for 2020 = $5.51

Market price of stock = price earning ratio * Earnings per share

= 12 * 5.51 = $ 66.12

f) Cash dividend per share for the year 2020 and dividend yield

Total dividends paid = $65

Shares outstanding = 42.8

Cash dividend per share = Total dividends paid/average shares outstanding

= 65/42.8 = $ 1.52 per share

Dividend yield based on market price = (Dividend per share/Market price of the stock)*100

= (1.52/ 66.12)*100

= 2.30%

g) Dividend payout ratio for 2020

Dividend payout ratio = Dividend paid per share/Net income

= 65/236 = 0.28 times

h) Calculation of number of days'sales in receivables at that date

Average sales = $3065/365 = $8.40

Accounts receivables = $324

Number of days sales in receivables = Average Accounts receivables / Average sales

= 324/8.4 = 38.57 days

i) Wiper's debt ratio and debt/equity ratio at Dec 2020, 2019

Debt ratio = Total liabilities / total assets

Debt equity ratio = Total liabilities / Total equity

Particulars	2020	2019
1. Current liabilities	592	845
2.Long term liabilities	1607	1070
a) Total liabilities (1+2)	2199	1915
b) Total assets	3221	2956
c) Total equity	1022	1041
Debt ratio (a/b)	68.27%	64.78%
Debt equity ratio (a/c)	2.15	1.84

j) Time interest earned ratio for 2020 and 2019

Time interest earned ratio = Earnings before interest and taxes/interest expense

Particulars	2020	2019
1. Net income	236	231
2. Interest	99	80
3. Tax paid	0	0
4. Eanings before interest and tax (1+2+3)	335	311
Time interest earned (4/2)	3.38	3.89