Question

Markus Company’s common stock sold for $2.00 per share at the end of this year. The company paid a common stock dividend of $0.42 per share this year. It also provided the following data excerpts from this year’s financial statements:     

	Ending Balance		Beginning Balance
Cash	$	30,500	$	46,000
Accounts receivable	$	52,000	$	45,000
Inventory	$	49,300	$	52,000
Current assets	$	131,800	$	143,000
Total assets	$	353,000	$	318,200
Current liabilities	$	52,500	$	37,500
Total liabilities	$	98,000	$	88,200
Common stock, $1 par value	$	111,000	$	111,000
Total stockholders’ equity	$	255,000	$	230,000
Total liabilities and stockholders’ equity	$	353,000	$	318,200

     

	This Year
Sales (all on account)	$	585,000
Cost of goods sold	$	339,300
Gross margin	$	245,700
Net operating income	$	75,500
Interest expense	$	4,500
Net income	$	49,700

a. What is the earnings per share?

b.What is the price-earnings ratio?

c.What is the dividend payout ratio and the dividend yield ratio?

d.What is the return on total assets (assuming a 30% tax rate)?

e.What is the return on equity?

Answer 1

Ans. A	Earnings per share = Net income / Common stock outstanding
	$49,700 / 111,000
	$0.45
	*Common stock outstanding =   Common stock / Par value
	$111,000 / $1	111000
Ans. B	Price earnings ratio = Market price per share / Earnings per share
	$2.00 / $0.45
	4.44	times
Ans. C	Payout ratio =    Dividend per share / Earnings per share * 100
	$0.42 / $0.45 * 100
	93.33%
	Dividend yield ratio = Dividend per share / Stock price per share * 100
	$0.42 / $2.00 * 100
	21.00%
Ans. D	Return on assets =   Net income / Average assets * 100
	$49,700 / $335,600 * 100
	14.8%
	*Average assets = (Beginning assets + Ending assets) / 2
	($318,200 + $353,000) / 2
	$335,600
Ans. E	Return on equity =   Net income / Average Common stockholder's equity * 100
	$49,700 / $335,600 * 100
	20.5%
	* Average Stockholder's equity =   (Beginning equity + Ending equity) / 2
	($230,000 + $255,000) / 2
	$242,500