Question

Here is the income statement for Metlock, Inc. METLOCK, INC. Income Statement For the Year Ended December 31, 2020 Sales revenue $449,500 Cost of goods sold 211,500 Gross profit 238,000 Expenses (including $11,700 interest and $29,700 income taxes) 78,800 Net income $ 159,200 Additional information: 1. Common stock outstanding January 1, 2020, was 22,400 shares, and 37,300 shares were outstanding at December 31, 2020. 2. The market price of Metlock stock was $13 in 2020. 3. Cash dividends of $22,600 were paid, $4,900 of which were to preferred stockholders. Compute the following measures for 2020. (Round all answers to 2 decimal places, e.g. 1.83 or 2.51%) (a) Earnings per share $enter a dollar amount (b) Price-earnings ratio enter Price-earnings ratio in times times (c) Payout ratio enter percentages % (d) Times interest earned enter Times interest earned times

Answer 1

Answer and Explanation:

The formula and the computations are shown below:

(a) Earnings per share = ( Net Income - Preference stock dividend) ÷ (Weighted average number of outstanding shares )

= ($159,200 - $4,900) ÷ (22,400 shares + 37,300 shares) ÷ 2

= $154,300 ÷  29,850 shares

= $5.169

= $5.17

(b) Price earnings ratio = Price ÷ Earning per share

= $13  ÷  $5.17

= 2.51 Times

(c) Payout ratio = Dividend paid to equity share holders ÷ net income  

= ($22,600 - $4,900 ) ÷  ($159,200)

= $17,700 ÷ $159,200

= 11.118 %

= 11.12%

(d) Times interest earned = Earnings before interest and tax ÷ Interest expense

= ($159,200 + $11,700 + 29,700) ÷ ($11,700 )

= 17.145

= 17.15 Times

We simply applied the above formulas to determine the each ratios