Question

The comparative financial statements for Prince Company are below: Year 2 Year 1 Income statement: Sales revenue Cost of goods sold Gross profit Operating expenses and interest expense $190,000 112,000 $167,000 100,000 67,000 53,000 14,000 4,000 10,000 78,000 56,000 Pretax income 22,000 8,000 14,000 Income tax Net income Balance sheet: $ 4,000 14,000 40,000 ,000 $103,000 $ 16,000 Cash Accounts receivable (net 7,000 18,000 34,000 38,000 97,000 Inventory Property and equipment (net) Total assets Current liabilities (no interest) Long-term liabilities (10% interest) Common stock ($5 par value, 6,000 shares outstanding) Retained earnings 17,000 45,000 30,000 5,000 97,000 45,000 30,000 12,000 $103,000 Total liabilities and stockholders' equity Assume that the stock price per share is $28 and that dividends in the amount of $3.50 per share were paid during Year 2. Compute the following ratios: (Round your answers to 2 decimal places. Enter percentage answers rounded to 2 decimal places (i.e. 0.1234 should be entered as 12.34).) Earnings per share 2.33 Current ratio 3.63 Quick ratio 1.13 Cash ratio Price/earnings ratio Dividend yield ratio 12.50 %

Answer 1

Earnings per share, current ratio, quick ratio and dividend yield ratios
are absolutely correct.
Calculations for Cash ratio and Price earning ratios are as follows:
Ans. 4	Cash ratio   =   Cash / Total current liabilities
	$4,000 / $16,000
	0.25
Ans. 5	Price earnings ratio = Stock price per share / Earnings per share
	$28 / $2.33
	12.02 times