Financial Accounting: An Integrated Statements Approach, 2nd Edition

The income before income tax was $528,000 and $336,000 for the years 2007 and 2006, respectively.

a. Determine the ratio of liabilities to stockholders’ equity at the end of each year. Round to

two decimal places.

b. Determine the number of times the bond interest charges are earned during the year for

both years.

c. What conclusions can be drawn from these data as to the company’s ability to meet its

currently maturing debts?

Dow Jones & Co., Inc., and New York Times Co.are major publishers of financial and general

news and information. Condensed financial information for both companies for a recent year is

as follows:

Recent year income statement information:

Dow Jones New York Times

Interest expense $ 3.7 $ 41.8

Income tax expense 58.6 183.5

Net income 99.5 292.6

Recent year balance sheet information:

Dow Jones New York Times

Fixed assets $1,023.2 $3,117.0

Total assets 1,380.2 3,949.9

Long-term liabilities 509.3 1,294.9

Total stockholders’ equity 150.5 1,400.5

a. Determine the following ratios for each company (round to two decimal places):

(1) Ratio of fixed assets to long-term liabilities.

(2) Ratio of liabilities to stockholders’ equity.

(3) Number of times interest charges were earned.

b. Compare the debt position of the two companies from the ratios in part (a).

The following information was taken from the financial statements of Fashion Cosmetics, Inc.,

for December 31 of the current fiscal year:

Common stock, $12 par value (no change during the year) $2,400,000

Preferred $9 stock, $100 par, cumulative, nonparticipating

(no change during year) 600,000

The net income was $444,000 and the declared dividends on the common stock were

$156,000 for the current year. The market price of the common stock is $39 per share.

For the common stock, determine the (a) earnings per share, (b) price-earnings ratio,

(c) dividends per share, and (d) dividend yield. Round to two decimal places.

AFLAC, Inc., is the largest accident and health insurer in the United States. The stockholders’

equity section of the balance sheet disclosed the following for the ending date of a recent year:

668 Chapter 14 Financial Statement Analysis

Exercise 14-23

Leverage analysis: long-term

debt position

Goal 4

Exercise 14-24

Stockholder ratios

Goal 5

b. Price-earnings ratio, 20

Exercise 14-25

Stockholder ratios

Goal 5

b. Dividends per share,

$0.38

Shareholders’ equity (in millions):

Common stock $ 533

Retained earnings 6,992

Accumulated other comprehensive income, net of taxes 2,609

Less: Treasury stock 2,561

Total shareholders’ equity $7,573