Six Financial Ratios The balance sheet for Bearing Industries, Inc. at the end o
ID: 2428027 • Letter: S
Question
Six Financial Ratios
The balance sheet for Bearing Industries, Inc. at the end of 20Y9 indicated the following:
Income before income tax was $172,900, and income taxes were $26,050 for the current year. Cash dividends paid on common stock during the current year totaled $28,969.5. The common stock was selling for $175 per share at the end of the year.
NOTE: To help you read the information above, you need to understand the following:
1) The percentage shown on the Bonds Payable line is the bond's contract rate (or coupon rate)--the annual percentage of interest the bonds will pay, calculated on the total liability shown on the right;
2) The amounts on the right are all in dollars (they are the amounts from the balance sheet). On the stock lines, they represent the total par value of each line. So, to calculate the number of shares outstanding for each type of stock, you would divide the total par value by the per share par value shown on each line on the left; and
3) The "$___ stock" notation on the Preferred stock line means that is the amount of dividend that will be paid per share of outstanding stock in the years the company pays dividends. Remember, preferred stockholders are paid before common stockholders.
Determine each of the following. Round to one decimal place except earnings per share and dividends per share, which should be rounded to the nearest cent.
Bonds payable, 7% (due in 30 years) $1,900,000 Preferred $5 stock, $50 par 89,000 Common stock, $12 par 66,216Explanation / Answer
a) bond interest per year =$ 1,900,000@ 7%= 1,900,000*7/100=$ 133,000
operating income before tax = $ 172,900
number of times bond interest interest charges are earned = $ 172,000/$ 133,000
= 1.293 times
b)preferred dividend =89000*5/50= $ 8,900
operating income before tax = $172,900
number of times preferred dividends are earned =$ 172,900/$ 8,900=19.427 times
c)number of common shares=$ 66,216/12= 5,518
operating income before tax =$ 172,900
less tax = $ 26,050
less preferred stock = $ 8,900
net income avilable to common share holders=$ 137,950
EPS = $ 137,950/5,518
= 25
d) =price earning ratio=market price/eps=175/25=7
e)total cash dividend =$ 28,969.5
common shares=5,518
dividend price share =$ 28,969.5/5,518
= 5.25
f) dividend yield =dividend per share/ share market price = 5.25/175=3%