Question

Use the data in P 13-5 for Prince Company. Assume that the stock price per share is $ 28 and that dividends in the amount of $ 3.50 per share were paid during Year 2. Compute the following ratios:
- Earnings per share
- Current ratio
- Quick ratio
- Cash ratio
- Price/earnings ratio
- Dividend yield ratio

Answer 1

2) Current Ratio for Year 2

Current Assets = Cash + Accounts Receivable + Inventory = 7,800 + 15,900 + 43,800 = 67,500Current Liabilities (given) = 17,900

Current Ratio = Current Assets / Current Liabilities = 67,500 / 17,900 = 3.77

3) Quick Ratio for Year 2

Quick Assets = Current Assets – Inventories – Prepaid Expenses = 67,500 – 43,800 = 23,700

Quick Ratio = Quick Assets / Current Liabilities = 23,700 / 17,900 = 1.32

4) Cash Ratio for Year 2

Cash Ratio = (Cash + marketable securities) / Current Liabilities = 7,800 / 17,900 = 0.4357 or 0.44

5) P/E Ratio for Year 2

P/E Ratio = Market Price Per Share / Earnings Per Share = $47 / 8.26 = 5.69

6) Dividend Yield Ratio for Year 2

Dividend Yield Ratio = Dividend Per Share / Market Price Per Share = 13 / 47 = 0.2766 or 27.66%

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