Question

Simon Company's year-end balance sheets follow. At December 31 Current Yr 1 Yr Ago 2 Yrs Ago $ 31,900 $ 34,700 $ 37,200 88,600 62,500 53,300 43,574 82,700 56,500 11, 1558, 7593, 342 394,771 241, 341 159, 658 $570,000 $430,000 $ 310,000 Assets Cash Accounts receivable, net Merchandise inventory Prepaid expenses Plant assets, net Total assets Liabilities and Equity Accounts payable Long-term notes payable secured by mortgages on plant assets Common stock, $10 par value Retained earnings Total liabilities and equity $144,769 $ 72,670 $ 41,738 106,088 99,889 67, 140 162,500 162,500 162,500 156, 643 94, 941 38,622 $570,000 $430,000 $ 310,000 The company's income statements for the Current Year and 1 Year Ago, follow.

Answer 1

1	Return on common stockholder's equity=Net income/Average common stockholder's equity
	Average common stockholder's equity=(Beginning common stockholder's equity+Ending common stockholder's equity)/2
	Common stockholder's equity=Common stock+Retained earnings
						Current year	1 year ago
	Net income				a	37050	30190
	Beginning common stock				b	162500	162500
	Beginning retained earnings				c	94941	38622
	Beginning common stockholder's equity				d=b+c	257441	201122
	Ending common stock				e	162500	162500
	Ending retained earnings				f	156643	94941
	Ending common stockholder's equity				g=e+f	319143	257441
	Average common stockholder's equity				h=(d+g)/2	288292	229281.5
	Return on common stockholder's equity				i=a/h	12.85%	13.17%
2	Price earnings ratio=Common stock market price/Earnings per share
	Earnings per share=Net income/Number of common shares outstanding
	Number of common shares outstanding=Common stock in $/Par value=162500/10=16250
						Current year	1 year ago
	Common stock market price				a	29	27
	Net income				b	37050	30190
	Number of common shares outstanding				c	16250	16250
	Earnings per share				d=b/c	2.28	1.86
	Price earnings ratio				e=a/d	12.72	14.53
2a.	A higher PE ratio shows that investors are willing to pay a higher share price because of the growth expectation in the future.
	Here, Simon has higher PE ratio than the competitor
	Hence,investors have greater expectation about future performance of Simon.
3	Dividend yield=Annual cash dividend per share/Common stock market price
						Current year	1 year ago
	Annual cash dividend per share				a	0.32	0.16
	Common stock market price				b	29	27
	Dividend yield				a/b	1.10%	0.59%