Problem 1:
Selected Financial Ratios:
Recent financial statements for Madison Corporation, a company that sells drilling equipment, are given below:
Madison Corporation
Balance Sheet
30-Jun
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Assets
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Current assets:
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Cash
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21,000
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Accounts recievable, net
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160,000
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Merchandise inventory
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300,000
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Prepaid expenses
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9,000
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Total current assets
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490,000
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Propert and equipment
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810,000
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Total assets:
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1,300,000
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Liabilities and Stockholders' Equity
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Liabilities
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Current liabilities
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200,000
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Bonds payable
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300,000
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Total liabilities
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500,000
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Stockholders' equity
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Common stock, $5 par value
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100,000
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Retained Earnings
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700,000
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Total stockholders' equity
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800,000
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Total labilities and stockholders' equity
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1,300,000
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Madison Corporation
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Income Statement
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Sales
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2,100,000
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Cost of goods sold
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1,260,000
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Gross Margin
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840,000
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Selling and administrative expense
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660,000
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Net operating
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180,000
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Interest expense
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30,000
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Net income before taxes
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150,000
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Income taxes (30%)
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45,000
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Net Income
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105,000
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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.
Problem 2: Selected Financial Ratios for Common Stockholders.
Refer to the financial statements for Madison Corporation in above. 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
Problem 3: Selected Financial Ratios for Common Stockholders
Refer to the financial statements for Madison Corporation in above 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? Explain.