The income statement for Sutherland, Inc., appears below SUTHERLAND, INC. Income

Question

The income statement for Sutherland, Inc., appears below SUTHERLAND, INC. Income Statement For the Year Ended December 31, 2017 Net sales Cost of goods sold Gress profit Expenses (including $16,000 interest and $24,000 income taxes) Net income $400,000 230,000 170,000 105,000 $ 65,000 Additional information: 1. The weighted-average common shares outstanding in 2017 were 30,000 shares. 2. The market price of Sutherland, Inc. stock was $13 in 2017 3. Cash dividends of $26,000 were paid, $5,000 of which were to preferred stockholders. Compute the following ratios for 2017. (Round Earnings per share to 2 decimal places, eg. i. 75, and all other answers to i decimal place, eg. 6.8 or 6.8% Earnings per share Price-earnings ratio Payout ratio Times interest earned $2 6.50 times 6.56 times

Explanation / Answer

1 Calculation of EPS: Net Income 65000 Less: Preferred Dividend 5000 Earning Available for Equity Shareholders 60000 A Weighted Average Common Stock Outstanding 30000 B Earning Per Share 2.00 A/B 2 Price Earning Ratio: Market Price Per Share 13.00 A Earning Per Share 2.00 B Price Earning Ratio 6.50 A/B 3 Payout Ratio: Dividend Per Share 0.70 A Dividend 21000 Earning Per Share 2.00 B Weighted Average Common Stock Outstanding 30000 Payout Ratio: 35.00% A/B Dividend Per Share 0.70 4 Times Interest Earned: Gross Profit 170000 Expense: 105000 Operating Expenses 65000 Less: Interest 16000 Income Before Interest & Taxes 105000 A Less: Taxes 24000 Interest Expense 16000 B Operating Expenses 65000 Times Interest Earned: 6.5625 A/B

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