Question

Here is the income statement for Windsor, Inc. WINDSOR, INC. Income Statement For the Year Ended December 31, 2022 Sales revenue $420,100 Cost of goods sold 235,100 Gross profit 185,000 Expenses (including $16,100 interest and $21,900 income taxes) 72,500 Net income $ 112,500 Additional information: 1. Common stock outstanding January 1, 2022, was 22,400 shares, and 36,600 shares were outstanding at December 31, 2022. 2. The market price of Windsor stock was $12 in 2022. 3. Cash dividends of $22,600 were paid, $4,600 of which were to preferred stockholders. Compute the following measures for 2022. (Round all answers to 2 decimal places, e.g. 1.83 or 2.51%) (a) Earnings per share $enter earnings per share in dollars 3.66 (b) Price-earnings ratio enter price-earnings ratio in times 3.28 times (c) Payout ratio enter payout ratio in percentages 19.8 % (d) Times interest earned enter times interest earned 9.35 times

Answer 1

Answer:

a) Earning per share $3.66

b) Price earning ratio 3.28 times

c) Payout ratio 20.09%

d) Time Interest earned 9.35 times

Explanation:

A) Calculation for Earnings per share

First step is to calculate the Weighted Average number of common shares outstanding using this formula.

Weighted Average number of common shares outstanding = (Number of common shares outstanding in the beginning + Number of common shares outstanding in the end)/2

Let plug in the formula

Weighted Average number of common shares outstanding= (22,400 + 36,600)/2

Weighted Average number of common shares outstanding= 29,500

Now let calculate the Earnings per share using this formula

Earnings per share = (Net income – Preferred stock dividend)/Weighted Average number of common shares outstanding

Let plug in the formula

Earnings per share= (112,500 – 4,600)/29,500

Earnings per share= 107,900/29,500

Earnings per share= $3.66

B) Calculation for Price-earnings ratio enter price-earnings ratio in times

Using this formula

Price earnings ratio = Market price of 1 common share/Earnings per share

Let plug in the formula

Price earnings ratio= 12/3.66

Price earnings ratio= 3.28 times

C) Calculation for Payout ratio enter payout ratio in percentages using this formula

Payout ratio = Cash dividends/Net income

Let plug in the formula

Payout ratio= 22,600/112,500

Payout ratio= 20.09%

D) Calculation for Times interest earned enter times interest earned using this formula

Times interest earned = (Net income + Interest expense + Tax expense)/Interest expense

Let plug in the formula

Times interest earned= (112,500 + 16,100 + 21,900)/16,100

Times interest earned= 150,500/16,100

Times interest earned= 9.35 times

Therefore:

a) Earning per share $3.66

b) Price earning ratio 3.28 times

c) Payout ratio 20.09%

d) Time Interest earned 9.35 times