Task:
Financial Ratios for Long-Term Creditors
Comparative financial statements for Weller Corporation for the fiscal year ending December 31 appear below. The company did not issue any new common or preferred stock during the year. A total of 800,000 shares of common stock were outstanding. The interest rate on the bond payable was 12%, the income tax rate was 40%, and the dividend per share of common stock was $0.25. The market value of the company’s common stick at the end of the year was $18. All of the company’s sales are on account.
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Weller Corporation
Comparative Balance Sheet
(dollars in thousands)
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This Year
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Last Year
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Assets
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Current assets
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Cash
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$1,280
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$1,560
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Accounts receivable, net
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12,300
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9,100
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Inventory
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9,700
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8,200
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Prepaid expenses
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1,800
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2,100
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Total current assets
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25,080
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20,960
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Property and equipment
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Land
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6,000
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6,000
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Buildings and equipment, net
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19,200
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19,000
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Total property and equipment
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25,200
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25,000
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Total assets
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$50,280
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$49,960
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Liabilities and Stockholders' Equity
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Current Liabilities
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Accounts payable
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$9,500
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$8,300
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Accrued payables
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600
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700
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Notes payable, short term
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300
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300
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Total current liabilities
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10,400
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9,300
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Long-term liabilities
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Bonds payable
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5,000
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5,000
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Total Liabilities
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15,400
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14,300
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Stockholders equity
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Preferred stock
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2,000
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2,000
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Common stock
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800
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800
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Additional paid-in capital
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2,200
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2,200
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Total paid in capital
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5,500
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5,000
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Retained earnings
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29,880
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26,660
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Total stockholders' equity
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34,880
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31,660
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Total liabilities and stockholders equity.
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$50,280
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$45,960
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Weller Corporation
Comparative income Statement and Reconciliation
(dollars in thousands)
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This Year
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Last Year
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Sales
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$79,000
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$74,000
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Cost of goods sold
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52,000
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48,000
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Gross Margin
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27,000
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26,000
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Selling and administrative expenses
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Selling expenses
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8,500
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8,000
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Administrative expenses
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12,000
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11,000
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Total selling and administrative expenses
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20,500
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19,000
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Net operating income
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6,500
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7,000
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Interest expense
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600
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600
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Net income before taxes
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5,900
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6,400
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Income Taxes
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2,360
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2,560
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Net income
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3,540
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3,840
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Dividends to preferred stock holders
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120
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400
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Net income remaining for common stockholders
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3,420
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3,440
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Dividends to common stock holders
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200
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200
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Net income added to retained earnings
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3,220
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3,240
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Retained earnings, beginning of year
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26,660
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23,420
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Retained earnings, end of year
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$29,880
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$26,660
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Compute the following financial ratios for long-term creditors for this year:
1. Times interest earned ratio
2. Debt-to-equity ratio