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Cornerstones of Financial Accounti...

4th Edition
Jay Rich + 1 other
ISBN: 9781337690881

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BuyFindarrow_forward

Cornerstones of Financial Accounti...

4th Edition
Jay Rich + 1 other
ISBN: 9781337690881
Textbook Problem

Ratio Analysis

Consider the following information taken from the stockholders’ equity section:

How do you interpret the company’s payout and profitability performance?

Chapter 10, Problem 88PSA, Ratio Analysis Consider the following information taken from the stockholders equity section: How do , example  1

Required:

1. Calculate the following for 2020. (Note. Round answers to two decimal places.)

Chapter 10, Problem 88PSA, Ratio Analysis Consider the following information taken from the stockholders equity section: How do , example  2

2. CONCEPTUAL CONNECTION Assume 2019 ratios were:

Chapter 10, Problem 88PSA, Ratio Analysis Consider the following information taken from the stockholders equity section: How do , example  3

and the current year industry averages are:

Chapter 10, Problem 88PSA, Ratio Analysis Consider the following information taken from the stockholders equity section: How do , example  4

How do you interpret the company’s payout and profitability performance?

To determine

(a)

Introduction:

Analyzing the financial statements allows the stockholders to assess payout. There are four payout ratios i.e. Dividend Yield, Dividend Payout, Stock repurchase Payout and total payout and mainly 2 Stockholder profitability ratios i.e. Return on common equity and earnings per share.

To calculate:

Stockholder payout and profitability ratios.

Explanation

Given:

Stockholders’ equity section of the balance sheet

Stockholder payout ratios:

a. Dividend Yield = Dividend per common shareCommon Stock Price

Dividend Yield = $1.16$105.45

Dividend Yield = 0.0110 or 1.10%

b. Dividend Payout = Common DividendsNet Income

Dividend Payout = $213,440$1,358,950

Dividend Payout = 0.1571 or 15.71%

c. Stock Repurchase Payout = Common Stock RepurchasesNet Income

Stock Repurchase Payout = $834,975$1,358,950

Stock Repurchase Payout = 0.6144 or 61.44%

d. Total Payout = Dividend Payout + Stock Repurchase Payout

Total Payout = 15.71% + 61.44%

Total Payout = 77.15%

Stockholder profitability ratios

a. Return on Common Equity = (Net Income - Preferred Dividends)Average Common stockholders' Equity Outstanding

Wherein,

Average Common Stockholders’ Equity Outstanding = ( 2019 total stockhol

To determine

(b)

Introduction:

Analyzing the financial statements allows the stockholders to assess payout. There are four payout ratios i.e. Dividend Yield, Dividend Payout, Stock repurchase Payout and total payout and mainly 2 Stockholder profitability ratios i.e. Return on common equity and earnings per share.

To interpret:

The given ratios for year 2019 and current year industry average.

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Chapter 10 Solutions

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