Comparative financial statements for Weller Corporation a me

Comparative financial statements for Weller Corporation, a merchandising company, for the year ending December 31 appear below. The company did not issue any new common stock during the year. A total of 600,000 shares of common stock were outstanding. The interest rate on the bonds, which were sold at their face value, was 10%. The income tax rate was 40% and the dividend per share of common stock was $0.40 this year. The market value of the company’s common stock at the end of the year was $25. All of the company’s sales are on account.

Solution

Part-1 - : Times interest earned ratio

For computing Time interest earned ratio = Net Income before Interest and Taxes or EBIT

                                                                                                Interest Expenses

As per above question we have the following amounts given:

Net Income before Interest and Taxes or EBIT = $13,700

Interest Expenses: $900

By taking the above amounts we can calculate

Time Interest earned ration = $13,700   

                                             $900

Time Interest earned ration = 15.2 times

Part-2: Debt-to-equity ratio

For computing Debt - Equity ratio= Total Debt

                                                   Total Equity

As per above question we have the following amounts given :

Step-1: Computation of Total Debt is sum of all long term borrowings and it is given as Bonds Payable is $9,000

Step -2 : Computation of Total Equity is sum of the following

Common Stock

=

$         2,000

Additional Paid Up Capital

=

$         4,000

Retained Capital

=

$       43,180

Total Equity

$       49,180

Step- 3 : Computation of Debt Equity Ratio

= Debt/Equity

=$9,000/$49,180

=0.18 times

Part-3: Computation of Equity multiplier:

For Computing Equity multiplier formula is: Total Assets /Equity

As per above question we have the following amounts given :

Total Assets value = $77,950

Total Equity = $49,180

So, Equity Multiplier = $77,950/$49,180

                                     = 1.59 times