rve Cash Accounts receivable Irnventory Marketable securities Accounts payable P

Question

rve Cash Accounts receivable Irnventory Marketable securities Accounts payable Payroll tax payable common stock par $4 10% Preferred stock par ss, Retained earnings $180,000 100,000 $60,000 $100,000 576,000 80,000 $25,000 $65.000 400,000 ends Net income before taxes Sales Cost of goods sold 800,000 $600,000 rket price on December 31, 2010 Compute the following ratios: inventory turnover Days sales in inveritory Earnings per share Dividends per share Dividend yield Price earnings ratio This syste The C call ou acer

Explanation / Answer

Inventory Turnover Ratio = Cost of Goods sold/ Average Inventory =

Average Inventory =( Opening inventory + closing inventory)/2 = (100,000+80,000)/2 = $90,000

Inventory Turnover Ratio = $600,000/$90,000 = 6.67

Days Sales in Inventory = (1/Inventory turnover) * 365 = (1/6.67) * 365 = 54.75

Earnings Per Share = Net Income – Preferred Dividend / Average Shares Outstanding =

Average Shares Outstanding = [(360,000/4) + (400,000/4)}/2 = (90,000+100,000)/2 = 95,000

Earning Per Share (EPS) = Net Income – Preferred Dividend/Average Shares Outstanding = (300,000 – 75,000) / 95000 = 225,000/95000 = $ 2.37

Dividend Per Share = Dividends / Average Shares Outstanding = $50,000/95,000 = $0.54 per share

Dividend yield = Annual Dividend / Market Price = $0.54/$10 = 0.054 or 5.4%

Price to Earning Ratio(PE) = Market Value per share / Earnings Per Share = $10/ $2.37 = 4.22

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