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Category > Accounting Posted 18 Aug 2017 My Price 13.00

Modern Building Supply

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 companyAc€?cs financial statements for the most recent two years follow:

Modern Building Supply Comparative Balance Sheet
	This Year		Last Year
Assets
Current assets:
Cash	$	70,000	$	148,000
Marketable securities		0		18,000
Accounts receivable, net		477,000		295,000
Inventory		947,000		587,000
Prepaid expenses		17,000		26,000

Total current assets		1,511,000		1,074,000
Plant and equipment, net		1,607,254		1,484,672

Total assets	$	3,118,254	$	2,558,672

Liabilities and Stockholders' Equity
Liabilities:
Current liabilities	$	806,000	$	443,000
Bonds payable, 11%		614,000		614,000

Total liabilities		1,420,000		1,057,000

Stockholders' equity:
Preferred stock, $25 par, 8%		282,500		282,500
Common stock, $10 par		503,000		503,000
Retained earnings		912,754		716,172

Total stockholders' equity		1,698,254		1,501,672

Total liabilities and stockholder's equity	$	3,118,254	$	2,558,672

Modern Building Supply Comparative Income Statement and Reconciliation
	This Year		Last Year
Sales	$	5,006,000	$	4,369,000
Cost of goods sold		3,856,000		3,448,000

Gross margin		1,150,000		921,000
Selling and administrative expenses		640,000		546,000

Net operating income		510,000		375,000
Interest expense		67,540		67,540

Net income before taxes		442,460		307,460
Income taxes (30%)		132,738		92,238

Net income		309,722		215,222

Dividends paid:
Preferred dividends		22,600		22,600
Common dividends		90,540		75,450

Total dividends paid		113,140		98,050

Net income retained		196,582		117,172
Retained earnings, beginning of year		716,172		599,000

Retained earnings, end of year	$	912,754	$	716,172

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 companyAc€?cs common stock is currently selling for $39.40 per share; last year it sold for $29.11 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	$	$

2.	You decide next to assess the companyAc€?cs rate of return. Compute the following for both this year and last year:

a.	The return on total assets. (Total assets at the beginning of last year were $2,290,000.) (Round your intermediate calculations to whole numbers and final answer to 1 decimal place.)

	This year	Last year
Return on total assets	%	%

b.	The return on common stockholdersAc€?c equity. (StockholdersAc€?c equity at the beginning of last year was $1,269,000.)(Round your intermediate calculations to whole numbers and final answer to 1 decimal place.)

	This year	Last year
Return on common stockholders' equity	%	%

Is the companyAc€?cs financial leverage positive or negative?

	Positive
	Negative

Answers

Maurice Tutor

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Status NEW Posted 18 Aug 2017 03:08 PM My Price 13.00

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