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Cornerstones of Financial Accounti...

4th Edition
Jay Rich + 1 other
ISBN: 9781337690881

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Cornerstones of Financial Accounti...

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

Refer to Steele’s financial statements in Exercise 12-76 and the information below.

Chapter 12, Problem 82E, Stockholder Ratios Refer to Steeles financial statements in Exercise 12-76 and the information

Required:

1. Compute the earnings per share, return on common equity, dividend yield ratio, and dividend payout ratio (in percentage terms, rounded to two decimal places except for EPS. which should be rounded to nearest cent) for 2018 and 2019.

2. CONCEPTUAL CONNECTION Indicate whether there were significant changes in these ratios between the years ended December 31, 2019. and December 31, 2018. Determine whether the stockholder ratios suggest that Steele was a better investment at December 31.2019. December 31.2018.

To determine

(a)

Introduction:

The shareholders ratio measures the assets of the company that are funded by the shareholders equity. In return value is paid to the shareholders in terms of dividend.

To find:

The earnings per share, return on common equity, dividend yield ratio, and dividend payout ratio of Steele’s for the year 2018 and 2019.

Explanation

Earning per share ratio=Net incomePreferred dividendsAverage numbers of common shares outstanding

Earnings per share for 2019 =$391,179$24,000$362,202

= $1.0137

Earnings per share for 2018 =$455,497$24,000$364,398

= $1.1841

Return on Common equity= Net incomeAverage common equity

Return on equity for 2019 =$391,179$2,354,455

= 16.61%

Common equity = Total equity-preferred stock

Average common equity=(Opening + Closing)2

=$2,267,617+$2,441,2932

= $2,354,455

Return on equity for 2018 =$455,497$2,175,369

To determine

(b)

Introduction:

The shareholders ratio measures the assets of the company that are funded by the shareholders equity. In return value is paid to the shareholders in terms of dividend

To state:

If there were any significant changes in the ratios from 2018 to 2019 and determine whether Steele was a better investment at 31st Dec 2018 or 31st Dec 2019.

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