Six Financial Ratios The balance sheet for Bearing Industries, Inc. at the end o

Question

Six Financial Ratios

The balance sheet for Bearing Industries, Inc. at the end of 20Y9 indicated the following:

Income before income tax was $334,800, and income taxes were $49,800 for the current year. Cash dividends paid on common stock during the current year totaled $74,250. The common stock was selling for $220 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, 9% (due in 30 years) $1,200,000 Preferred $5 stock, $100 par 300,000 Common stock, $13 par 175,500

Explanation / Answer

Bonds payable, 9% (due in 30 years)

c. Earnings per share on common stock (Enter as dollars and cents.)

a. Number of times bond interest charges are earned:

Bonds payable, 9% (due in 30 years)

$1,200,000 Interest on bonds payable 108000 Number of times bond interest charges are earned = Interest before Interest and tax/Interest IBIT 334800 Add: Iterest 108000 Interest before interest and tax 442800 Number of times bond interest charges are earned = Income before Interest and tax/Interest = 442800/108000 = 4.1 times b. Number of times preferred dividends are earned = Income After tax /Dividend = (334800-49800)/(3000*$5) = 285000/15000 = 19 Times

c. Earnings per share on common stock (Enter as dollars and cents.)

EPS = Income attributable to equity share holders/Number of common stock outstanding EPS = (285000-15000)/13500 EPS = (285000-15000)/13500 EPS = $20 d. Price-earnings ratio = Share price in market/ EPS d. Price-earnings ratio = $220/20 d. Price-earnings ratio = 11 Times e. Dividends per share of common stock (Enter as dollars and cents.) = $74250/13500 Dividends per share of common stock (Enter as dollars and cents.) = $5.50

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