27th Edition
WARREN + 5 others
ISBN: 9781337272094




27th Edition
WARREN + 5 others
ISBN: 9781337272094
Textbook Problem

Five measures of solvency or profitability

The balance sheet for Garcon Inc. at the end of the current fiscal year indicated the following:

Bonds payable, 8% $5,000,000
Preferred $4 stock, $50 par 2,500,000
Common stock, $10 par 5,000,000

Income before income tax was $3,000,000, and income taxes were $1,200,000 for the current year. Cash dividends paid on common stock during the current year totaled $1,200,000. The common stock was selling for $32 per share at the end of the year. Determine each of the following: (a) times interest earned ratio, (b) earnings per share on common stock, (c) price-earnings ratio, (d) dividends per share of common stock, and (e) dividend yield. Round ratios and percentages to one decimal place, except for per-share amounts.

To determine

Financial Ratios: Financial ratios are the metrics used to evaluate the liquidity, capabilities, profitability, and overall performance of a company.

Given info: Income before income tax and interest expense.

To determine: Times interest earned ratio


Times interest earned ratio quantifies the number of times the earnings before interest and taxes can pay the interest expense. First, determine the sum of income before income tax and interest expense. Then, divide the sum by interest expense.


Times-interest-earned ratio }=Income before income tax+


To determine
Earnings per share on the common stock


To determine
Price earnings ratio


To determine
Dividend per share of common stock


To determine
Dividend yield

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