AE14-9 The income statement for Christensen, Inc., appears below. CHRISTENSEN, I

Question

AE14-9


The income statement for Christensen, Inc., appears below.
CHRISTENSEN, INC.
Income Statement
For the Year Ended December 31, 2011

Sales $395,300
Cost of goods sold 230,300

Gross profit 165,000
Expenses (including $15,000 interest and $23,530 income taxes) 106,800

Net income $58,200



Additional information:

The weighted average common shares outstanding in 2011 were 29,000 shares.

The market price of Christensen, Inc. stock was $14 in 2011.

Cash dividends of $29,800 were paid, $4,970 of which were to preferred stockholders.

Compute the following ratios for 2011.

(a) Earnings per share. (Round answer to 2 decimal places, e.g. 10.50 and use the rounded the amount for future calculations.)
(b) Price-earnings. (Round answer to 1 decimal place, e.g. 10.5.)
(c) Payout. (Round answer to 0 decimal places, e.g. 25%.)
(d) Times interest earned. (Round answer to 1 decimal place, e.g. 10.5.)

(a) Earnings per share $ ___________________

(b) Price-earnings ________________________times

(c) Payout _______________________________ %

(d) Times interest earned ___________________times

Explanation / Answer

a)      EPS : Net profit available to shareholders/ Number of common shares outstanding

Net Income available is $58,200 – 4,970 pref dividend = $53,230

EPS = 53,230/29000 = 1.84 / share

b)      Price Earnings : Market Price per share / EPS

Price Earnings = 14 / 1.84 = 7.61

c)       Payout % : Total dividend to equity shareholders(cash dividend)/net profit available to shareholders.

Payout = ( total dividend 29,800 – 4,970 pref. cash dividend) /53,230= 46.64%

d)      Times Interest earned times : EBIT / Int.

Times interest earned times = EBIT ( which is Net Income 58,200 + Interest 15000 + 23,530 tax)

                                                        = 96,730 / 15,000 = 6.448 times

(a) Earnings per share = $ 1.84

(b) Price-earnings = 7.6 times

(c) Payout = 47%

(d) Times interest earned = 6.4 times

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