Question

Here is the income statement for Eberle, Inc. EBERLE, INC. Income Statement For the Year Ended December 31, 2014 Sales revenue $423,100 Cost of goods sold 224,200 Gross profit 198,900 Expenses (including $13,400 interest and $21,900 income taxes) 70,600 Net income $ 128,300 Additional information: 1. Common stock outstanding January 1, 2014, was 26,300 shares, and 37,700 shares were outstanding at December 31, 2014. 2. The market price of Eberle, Inc., stock was $15 in 2014. 3. Cash dividends of $22,700 were paid, $3,500 of which were to preferred stockholders. Compute the following measures for 2014. (Round all answers to 2 decimal places, e.g. 1.83 or 2.51%) (a) Earnings per share $ (b) Price-earnings ratio times (c) Payout ratio % (d) Times interest earned times

Answer 1

Answer:

(A) $3.9

(B) 3.84 times

(C)  $0.71

(D)  9.57 times

Explanation:

(A).  The computation of earning per share is shown below:

= (Net income - preference dividend) ÷ (average of outstanding shares)

where,  

Average of outstanding shares = (Beginning balance of outstanding shares + ending balance of outstanding shares) ÷ 2

The other items value will remain the same  

Now put these values to the above formula  

So, the value would equal to

= ($128,300 - $3,500) ÷ {(26,300 shares +37,700 shares ) ÷ 2}

=  $124,800 ÷ 32,000 shares

= $3.9

(B). The computation of price earning ratio is shown below:

= Market price of stock ÷ Earning per share

= $15 ÷ $3.9

= 3.84 times

(C). The computation of the payout ratio is shown below:

= Dividend per share ÷ Earning per share

where,

Dividend per share = (Annual dividend ÷ average number of outstanding shares)

= $22,700 ÷ {(26,300 shares +37,700 shares ) ÷ 2}

= $22,700  ÷ 32,000 shares

= $0.71

(D) The computation of times interest earned is shown below:

= Earning before interest and tax ÷ interest expense

= $128,300 ÷ $13,400

= 9.57 times