How is EPS calculated if no preferred stock is involved?
How is EPS calculated if no
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Profitability Ratios
Mike Sanders is considering the purchase of Kepler Company, a firm specializing in the manufacture of office supplies. To be able to assess the financial capabilities of the company, Mike has been given the company's financial statements for the 2 most recent years.
| Kepler Company | ||||
| Comparative Balance Sheets | ||||
| This Year | Last Year | |||
| Assets | ||||
| Current assets: | ||||
| Cash | $ 50,000 | $100,000 | ||
| 300,000 | 150,000 | |||
| Inventory | 600,000 | 400,000 | ||
| Prepaid expenses | 25,000 | 30,000 | ||
| Total current assets | $ 975,000 | $680,000 | ||
| Property and equipment, net | 125,000 | 150,000 | ||
| Total assets | $1,100,000 | $830,000 | ||
| Liabilities and |
||||
| Current liabilities: | ||||
| Accounts payable | $ 400,000 | $290,000 | ||
| Short-term notes payable | 200,000 | 60,000 | ||
| Total current liabilities | $ 600,000 | $350,000 | ||
| Long-term bonds payable, 12% | 100,000 | 150,000 | ||
| Total liabilities | $ 700,000 | $500,000 | ||
| Stockholders' equity: | ||||
| Common stock (100,000 shares) | 200,000 | 200,000 | ||
| 200,000 | 130,000 | |||
| Total liabilities and stockholders' equity | $1,100,000 | $830,000 |
| Kepler Company | ||||
| Comparative Income Statements | ||||
| This Year | Last Year | |||
| Sales | $ 950,000 | $ 900,000 | ||
| Less: Cost of goods sold | 500,000 | 490,000 | ||
| Gross margin | $ 450,000 | $ 410,000 | ||
| Less: Selling and administrative expenses | 275,000 | 260,000 | ||
| Operating income | $ 175,000 | $ 150,000 | ||
| Less: Interest expense | 12,000 | 18,000 | ||
| Income before taxes | $ 163,000 | $ 132,000 | ||
| Less: Income taxes | 65,200 | 52,800 | ||
| Net income | $ 97,800 | $ 79,200 | ||
| Less: Dividends (common) | 27,800 | 19,200 | ||
| Net income, retained | $ 70,000 | $ 60,000 |
Also, assume that for last year and for the current year, the market price per share of common stock is $2.98. In addition, for last year, assets and equity were the same at the beginning and end of the year.
Required:
Note: Round all answers to two decimal places.
1. Compute the following for each year:
1. Compute the following for each year:
This Year Last Year
a. Return on assets fill in the blank 1
1.06
% fill in the blank 2
0.88
%
b. Return on stockholders' equity fill in the blank 3
1.75
% fill in the blank 4
1.80
%
c. Earnings per share $fill in the blank 5
0.98
$fill in the blank 6
0.40
d. Price-earnings ratio fill in the blank 7
fill in the blank 8
e. Dividend yield fill in the blank 9
0.09
% fill in the blank 10
0.06
%
f. Dividend payout ratio fill in the blank 11
0.28
fill in the blank 12
0.24
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