The income statemept for Sutherland, Inc., appears below. SUTHERLAND, INC. Incom

Question

The income statemept for Sutherland, Inc., appears below. SUTHERLAND, INC. Income Statement For the Year Ended December 31, 2017 Net sales Cost of goods sold Gross profit Expenses (including $13,000 interest and $29,500 income taxes) Net income $442,000 218,000 224,000 110,000 $114,000 Additional information 1. The weighted-average common shares outstanding in 2017 were 36,000 shares. 2. The market price of Sutherland, Inc, stock was $16 in 2017 3. Cash dividends of $26,500 were paid, $6,600 of which were to preferred stockholders. Compute the following ratios for 2017. (Round Earnings per share to 2 decimal places, e.g. 1.65, and all other a (a) Earnings per share times (b) Price-earnings ratio (c) Payout ratio (d) Times interest earned times

Explanation / Answer

Computation of ratios Answer a Earnings per share = (Net Income - Dividends on preferred stock) / Weighted average common shares outstanding Earnings per share = ($114000 - $6600) / 36000 shares = $2.98 per share Answer b Price Earning per share = Market price per share / Earnings per share Price Earning per share = $16 / $2.98 = 5.36 times Answer c Payout ratio = Cash dividends / Net Income Payout ratio = $26,500 / $1,14,000 = 23.25% Answer d Times Interest Earned = Earnings before interest and taxes / Interest Expense Times Interest Earned = [$114000+$13000+$29500] /$13000 = 12.04 times

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