*Pleases SHOW HOW TO SOLVE this Shull Corporation\'s most recent balance sheet a
ID: 2491797 • Letter: #
Question
*Pleases SHOW HOW TO SOLVE this Shull Corporation's most recent balance sheet and income statement appear below: Shull corporation statement of Financial position December 31, Year 2 and Year 1 (dollars in thousands)
Current assets....................................Year 2.....Year 1
Cash................................................$ 180......$ 150
Accounts Receivable.............................200.........190
Inventory............................................140.........140
Prepaid expenses.................................100.........90 =
Total current assets..............................620.........570
Plant & equipment, net..........................780.........800 =
Total assets.....................................$1,400.....$1,370
Current liabilities: Accounts payable................................$ 110......$ 130
Accrued liabilities...................................80..........70
Notes payable, short term.......................60..........60 =
Total current liabilities...........................250.........260
Bonds payable......................................220.........240 =
Total liabilities......................................470.........500
Stockholders' equity: Preferred stock, $100 par value, 5%..........200..........200
Common Stock, $2 par value....................400...........400
Additional paid-in capital--common stock...100...........100
Retained earnings...................................230...........170 =
Total stockholders' equity........................930...........870 =
Total liabilities & stockholders equity......$1,400.......$1,370
Shull Corporation Income Statement For the Year Ended December 31, Year 2 (Dollars in thousands)
Sales (all on account)....................$1,130
Cost of goods sold..........................700 =
Gross margin..................................430
Selling and administrative expense....244 =
Net operating income.......................186
Interest expense.............................29 =
Net income before taxes..................157
Income taxes (30%)........................47 =
Net income..................................$110
Dividends on common stock during Year 2 totaled $40 thousand. Dividends on preferred stock total $10 thousand. The market price of common stock at the end of the year 2 was $9.80 per share.
REQUIRED:
Compute the following for Year 2:
1. Gross margin percentage
2. Earnings per share (of common stock)
3. Price-earnings ratio
4. Dividend payout ratio
5. Dividend yield ratio
6. Return on total assets
7. Return on common stockholders’ equity
8. Book value per share
9. Working capital
10. Current ratio
Explanation / Answer
1)The formula to calculate gross margin percentage is given below
Gross margin percentage = (gross profit / sales ) x 100
Putting the values in the formula we get
Gross margin percentage = (430,000 / 1130,000) x 100
= 38.05%
2) The formula to calculate earnings per share is given below
EPS =( net income – dividend on preferred stock ) / average common stock
Where
Net income = 110,000
Dividend on preferred stock = 10,000
Average shares outstanding = 400,000 / 2 = 200,000
Putting the values in the formula we get
EPS =(110,000 – 10,000) / 200,000
= $0.50
3 ) the formula to calculate Price-earnings ratio is given below
PE ratio = market price per share / earning price per share
Where
market price per share = $9.80
EPS = 0.50
Putting the values in the formula we get
PE ratio = 9.80 / 0.50
=19.6 times
4) The formula to calculate Dividend payout ratio is given below
Dividend payout ratio = dividend paid to equity shareholders / (net income – dividend paid to preferred stock
Where
Dividend paid to equity shareholders = 40,000
Net income = 110,000
Dividend on preferred stock = 10,000
Putting the values in the formula we get
Dividend payout ratio = 40,000 / 100,000
= 0.40
5) The formula to calculate Dividend yield ratio is given below
Dividend yield ratio = cash dividend per share / market value per share
Where
cash dividend per share = 40,000 / 200,000 = 0.20
market value per share = $9.80
putting values in the formula we get
dividend yield ratio = 0.20 / 9.80
= 0.02
6) The formula to calculate return on total assets is given below
Return on asset ratio = net income / average total assets
Where
Net income = 110,000
Average total assets = opening total asset balance + closing asset balance / 2
=(1,400,000 + 1,370,000) /2
=1,385,000
Putting value in the formula we get
Return on asset ratio = 110,000 / 1,385,000
=0.08
7) The formula to calculate Return on common stockholders’ equity
is given below
return on common stockholders equity = (net income – preferred dividend) / average common stock holders equity
where
Net income = 110,000
Dividend on preferred stock = 10,000
Average common stockholders equity = (930,000 +870,000 /2) –(200,000 +200,000 /2)
= 900,000 – 200,000
=700,000
Putting value in the formula we get
return on common stockholders equity = 100,000 / 700,000
=0.14
8) The formula to calculate Book value per share is given below
Book value per share = total equity – preferred stock / average equity shares outstanding
Where
Total equity = 870,000
Preferred stock = 200,000
Average outstanding equity shares = 200,000
Putting the value in the formula we get
= (870,000 – 200,000) / 200,000
= 670,000 / 200,000
= $3.35
9) The formula to calculate Working capital is given below
Working capital = current assets – current liabilities
Working capital = 570,000 – 260,000
= $310,000
10 ) The formula to calculate current ratio is given below
Current ratio = current assets / current liabilities
Current ratio = 570,000 / 260,000
= 2.19 times
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