Homework Answers
Answer a.
2018:
Times interest earned = Income before interest and taxes /
Interest expense
Times interest earned = $119,000 / $8,650
Times interest earned = 13.76
2017:
Times interest earned = Income before interest and taxes /
Interest expense
Times interest earned = $75,000 / $7,500
Times interest earned = 10.00
Answer b.
2018:
Earnings per share = Net income after taxes / Average number of
shares outstanding
Earnings per share = $55,560 / 7,810
Earnings per share = $7.11
2017:
Earnings per share = Net income after taxes / Average number of
shares outstanding
Earnings per share = $63,200 / 6,880
Earnings per share = $9.19
Answer c.
2018:
Price-earnings ratio = Market price per share / Earnings per
share
Price-earnings ratio = $65.00 / $7.11
Price-earnings ratio = 9.14
2017:
Price-earnings ratio = Market price per share / Earnings per
share
Price-earnings ratio = $77.00 / $9.19
Price-earnings ratio = 8.38
Answer d.
2018:
Average stockholders’ equity = ($314,000 + $240,000) / 2
Average stockholders’ equity = $277,000
Return on average equity = Net income after taxes / Average
stockholders’ equity
Return on average equity = $55,560 / $277,000
Return on average equity = 0.2006 or 20.06%
2017:
Average stockholders’ equity = ($240,000 + $191,000) / 2
Average stockholders’ equity = $215,500
Return on average equity = Net income after taxes / Average
stockholders’ equity
Return on average equity = $63,200 / $215,500
Return on average equity = 0.2933 or 29.33%
Answer e.
2018:
Net margin = Net income after taxes / Net sales
Net margin = $55,560 / $422,000
Net margin = 0.1317 or 13.17%
2017:
Net margin = Net income after taxes / Net sales
Net margin = $63,200 / $269,000
Net margin = 0.2349 or 23.49%
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