Here is the income statement for Swayze, Inc. Sales $400,000 Cost of Goods Sold
ID: 2351650 • Letter: H
Question
Here is the income statement for Swayze, Inc.Sales $400,000
Cost of Goods Sold 230,000
Gross profit 170,000
Expenses (Including $16,000 interest and $24,000 income taxes) 90,000
Net income $80,000
Additional information:
1. Common stock outstanding January 1, 2010 was 30,000 shares, and 40,000 shares were outstanding at December 31, 2010.
2. The market price of Swayze, Inc. stock was $17.60 in 2010.
3. Cash dividends of $21,000 were paid, $10,000 of which were to preferred stockholders.
Compute the following:
a. Earnings per share
b. Price-earnings ratio
c. Payout ratio
d. Times interest earned ratio
Explanation / Answer
a. Earnings per share = (net income - preferred dividends)/(weighted average common shares = (80,000 - 10,000)/((30,000 + 40,000)/2) = 70,000/35,000 = 2 b. Price earning ratio = Market price per share/earnings per share = 17.60/2 = 8.8 c. Payout ratio = divdends paid on common stock divided by net income = 11,000/80,000 = 0.1375 d. Times interest earned ratio = income before interest expesnse and income taxes divided by interet expense = (80,000 + 16,000 + 24,000)/16000 = 7.5