Modern Building Supply sells various building materials to retail outlets. The company has just approached Linden State Bank requesting a $300,000 loan to strengthen the Cash account and to pay certain pressing short-term obligations. The company's financial statements for the most recent two years follow:
Modern Building Supply
Comparative Balance Sheet |
|
This Year |
Last Year |
| Assets |
|
|
|
|
| Current assets: |
|
|
|
|
| Cash |
$ |
56,000 |
$ |
146,000 |
| Marketable securities |
|
0 |
|
12,000 |
| Accounts receivable, net |
|
470,000 |
|
281,000 |
| Inventory |
|
942,000 |
|
593,000 |
| Prepaid expenses |
|
18,000 |
|
27,000 |
|
|
|
|
|
| Total current assets |
|
1,486,000 |
|
1,059,000 |
| Plant and equipment, net |
|
1,604,316 |
|
1,457,748 |
|
|
|
|
|
| Total assets |
$ |
3,090,316 |
$ |
2,516,748 |
|
|
|
|
|
| Liabilities and Stockholders' Equity |
|
|
|
|
| Liabilities: |
|
|
|
|
| Current liabilities |
$ |
804,000 |
$ |
435,000 |
| Bonds payable, 9% |
|
604,000 |
|
604,000 |
|
|
|
|
|
| Total liabilities |
|
1,408,000 |
|
1,039,000 |
|
|
|
|
|
| Stockholders' equity: |
|
|
|
|
| Preferred stock, $25 par, 8% |
|
255,000 |
|
255,000 |
| Common stock, $10 par |
|
502,000 |
|
502,000 |
| Retained earnings |
|
925,316 |
|
720,748 |
|
|
|
|
|
| Total stockholders' equity |
|
1,682,316 |
|
1,477,748 |
|
|
|
|
|
| Total liabilities and stockholder's equity |
$ |
3,090,316 |
$ |
2,516,748 |
|
|
|
|
|
|
Modern Building Supply
Comparative Income Statement and Reconciliation |
|
This Year |
Last Year |
| Sales |
$ |
5,020,000 |
$ |
4,355,000 |
| Cost of goods sold |
|
3,874,000 |
|
3,433,000 |
|
|
|
|
|
| Gross margin |
|
1,146,000 |
|
922,000 |
| Selling and administrative expenses |
|
634,000 |
|
537,000 |
|
|
|
|
|
| Net operating income |
|
512,000 |
|
385,000 |
| Interest expense |
|
54,360 |
|
54,360 |
|
|
|
|
|
| Net income before taxes |
|
457,640 |
|
330,640 |
| Income taxes (30%) |
|
137,292 |
|
99,192 |
|
|
|
|
|
| Net income |
|
320,348 |
|
231,448 |
|
|
|
|
|
| Dividends paid: |
|
|
|
|
| Preferred dividends |
|
20,400 |
|
20,400 |
| Common dividends |
|
95,380 |
|
75,300 |
|
|
|
|
|
| Total dividends paid |
|
115,780 |
|
95,700 |
|
|
|
|
|
| Net income retained |
|
204,568
|
|
135,748
|
| Retained earnings, beginning of year |
|
720,748 |
|
585,000 |
|
|
|
|
|
| Retained earnings, end of year |
$ |
925,316 |
$ |
720,748 |
|
|
|
|
|
|
|
During the past year, the company has expanded the number of lines that it carries in order to stimulate sales and increase profits. It has also moved aggressively to acquire new customers. Sales terms are 2/10, n/30. All sales are on account.
|
| Assume that the following ratios are typical of companies in the building supply industry: |
|
|
|
| Current ratio |
2.5 |
|
| Acid-test ratio |
1.2 |
|
| Average collection period |
18 |
days |
| Average sale period |
50 |
days |
| Debt-to-equity ratio |
0.75 |
|
| Times interest earned ratio |
6.0 |
|
| Return on total assets |
10 |
% |
| Price-earnings ratio |
9 |
|
|
|
Assume that you have just inherited several hundred shares of Modern Building Supply stock. Not being acquainted with the company, you decide to do some analytical work before making a decision about whether to retain or sell the stock you have inherited.
|
| Required: |
| 1. |
You decide first to assess the well-being of the common stockholders. For both this year and last year, compute the following:
|
| a. |
The earnings per share.(Round your answers to 2 decimal places.)
|
|
This year |
Last year |
| Earnings per share |
$ |
$ |
|
| b. |
The dividend yield ratio for common stock. The company's common stock is currently selling for $41.86 per share; last year it sold for $31.92 per share. (Round your intermediate calculations to 2 decimal places and final answers to 1 decimal place.)
|
|
This year |
Last year |
| Dividend yield ratio |
% |
% |
|
| c. |
The dividend payout ratio for common stock. (Round your intermediate calculations to 2 decimal places and final answers to 1 decimal place.)
|
|
This year |
Last year |
| Dividend payout ratio |
% |
% |
|
| d. |
The price-earnings ratio. (Round your intermediate calculations to 2 decimal places and final answers to 1 decimal place.)
|
|
This year |
Last year |
| Price-earnings ratio |
times |
times |
|
| e. |
The book value per share of common stock. (Round your answers to 2 decimal places.)
|
|
This year |
Last year |
| Book value per share |
$ |
$ |
|
Im having a hard time figuring out the earnings per share without the treasury stock. I cant figure out the rest without the earnings per share. Please show me how to calculate without treasury stock.
|