Question

Here is the income statement for Skysong, Inc. SKYSONG, INC. Income Statement For the Year Ended December 31, 2017 Sales revenue Cost of goods sold Gross profit Expenses (including $16,700 interest and $26,400 income taxes) _83,500 Net income $404,100 234,000 170,100 86,600 Additional information: 1. Common stock outstanding January 1, 2017, was 24,700 shares, and 37,100 shares were outstanding at December 31, 2017 2. The market price of Skysong stock was $14 in 2017. 3. Cash dividends of $22,900 were paid, $4,900 of which were to preferred stockholders. Compute the following measures for 2017 Round earnings per share to 2 decimal places e g 1 83 and all other a swers t 1 decima piace, e9-18 or 2.5% (a) Earnings per share s (b) Price-earnings ratio (c) Payout ratio times (d) Times interest earned times

Answer 1

Answer:

a. The Earnings per share is $2.64 per share

b. The Price-earnings ratio is 5.30 times

c. The Payout ratio is 26.44%

d.The Times Interest earned is 7.76 times

Explanation:

a. In order to calculate the Earnings per share we would have to use the following formula:

Earnings per share = [Net Income - Dividend on preferred stock] / Average outstanding common shares

Average outstanding common shares = [24,700 shares + 37,100 shares]/2 = 30,900 shares

Earnings per share = [$86,600 - $4,900] / 30,900 shares = $2.64 per share      

b. In order to calculate the Price earnings ratio we would have to use the following formula:

Price earnings ratio = Market price per share / Earnings per share

Price earnings ratio = $14 / $2.64 = 5.30 times

c. In order to calculate the Payout ratio we would have to use the following formula:

Payout ratio = Dividend / Net Income

Payout ratio = $22,900 / $86,600 = 26.44%

   

d. In order to calculate the Times Interest earned we would have to use the following formula:

Times Interest earned = Earnings before interest and taxes / Interest Expense

Earnings before interest and taxes = Net Income + Interest Expense + Taxes = $86,600 + $16,700 + $26,400 = $ 129,700

Times Interest earned = $129,700/ $16,700 = 7.76 times