Six Measures of Solvency or Profitability The balance sheet for Bearing Industri
ID: 2454579 • Letter: S
Question
Six Measures of Solvency or Profitability The balance sheet for Bearing Industries Inc. at the end of the current fiscal year indicated the following: Bonds payable, 6% (issued in 2006, due in 2026) $1,300,000 Preferred $5 stock, $50 par 150,000 Common stock, $11 par 577,500 Income before income tax was $265,200, and income taxes were $40,200, for the current year. Cash dividends paid on common stock during the current year totaled $44,100. The common stock was selling for $28 per share at the end of the year. Determine each of the following. Round answers to one decimal place, except for dollar amounts which should be rounded to the nearest whole cent. Use the rounded answers for subsequent requirements, if required.Explanation / Answer
Times Earned Interest ratio( For Bond) = EBIT / Bond Interest
EBIT = Net Income Before Taxes + Interest Expense( Bonds Nad Preferred)
Interest(Bond) = 6% of 1300000 = 78000
Preferred Dividend = 5/50*150000 = 15000
EBIT = 265200 + 78000 + 15000 = 358200
a) Times Interest Ratio (bond) = 358200 / 78000 = 4.59
b) Times Interest Ratio (bond) = (358200 - 78000) / 15000 = 18.68
c) Net Income for equity shareholders = 265200 - 40200 = 225000
EPS = Earnings / No Of Shares , no of shares = 577500 / 11 = 52500
EPS = 225000 / 52500 = 4.29
d) P/E ratio = Price / Earnings Per Share = 28/4.29 = 6.53
e) Dividends per share = 44100 / 52500 = $ 0.84 per share
f) Dividend Yield = Dividend Per Share / Market Price = 0.84 / 28 = 3%