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Ratio Analysis

Exercise 14-6 Selected Financial Ratios (LO3, LO4)
Recent financial statements for Madison Corporation, a company that sells drilling equipment, are given below:

Madison Corporation
Balance Sheet
30-Jun

Assets
Current assets:
Cash 21,000
Accounts recievable, net 160,000
Merchandise inventory 300,000
Prepaid expenses 9,000
Total current assets 490,000
Propert and equipment 810,000
Total assets: 1,300,000

Liabilities and Stockholders' Equity
Liabilities
Current liabilities 200,000
Bonds payable 300,000
Total liabilities 500,000
Stockholders' equity
Common stock, $5 par value 100,000
Retained Earnings 700,000
Total stockholders' equity 800,000
Total labilities and stockholders' equity 1,300,000

Madison Corporation
Income Statement
Sales 2,100,000
Cost of goods sold 1,260,000
Gross Margin 840,000
Selling and administrative expense 660,000
Net operating 180,000
Interest expense 30,000
Net income before taxes 150,000
Income taxes (30%) 45,000
Net Income 105,000

Account balances at the beginning of the company's fiscal year were: accounts receivable,
$140,000; and inventory, $260,000. All sales were on account.

Exercise 14-7 Selected Financial Ratios for Common Stockholders.
Refer to the financial statements for Madison Corporation in Exercise 14-6. In addition to the data in these statements, assume that Madison Corp paid dividends of $3.15 per share during the year. Also, assume that the company's common stock had a market price of $63 per share on June 30 and there was no change in the number of outstanding shares of common stock during the fiscal year.
Required:
Compute the following financial ratios:
1. Earnings per share
2. Dividend payout ratio
3. Dividend yield ratio
4. Price earnings ratio
14-8 Selected Financial Ratios for Common Stockholders (LO2)
Refer to the financial statements for Madison Corporation in Exercise 14-6. Assets at the beginning of the year totaled $1,100,000, and the stockholders' equity totaled $725,000.
Required:
Compute the following financial ratios:
1. Return on total assets.
2. Return on common stockholders' equity.
3. Was Financial Leverage positive or negative for the year?

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Solution Summary

The solution explains the calculation of various ratios.

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