Financial Accounting: An Integrated Statements Approach, 2nd Edition

Chapter 14 Financial Statement Analysis 669

The statement of stockholders’ equity showed the following changes in the retained earnings

balance for the year:

There were 507,333,000 shares outstanding for computing earnings per share. The market price

of the common stock averaged $40 per share during the year.

Determine for the common stock (rounding to two decimal places):

a. Earnings per share.

b. Dividends per share.

c. Price-earnings ratio.

d. Dividend yield.

The net income reported on the income statement of Cincinnati Soap Co. was $890,000. There

were 500,000 shares of $20 par common stock and 40,000 shares of $8 cumulative preferred stock

outstanding throughout the current year. The income statement included two extraordinary

items: a $256,000 gain from condemnation of land and a $166,000 loss arising from flood dam-

age, both after applicable income tax. Determine the per-share figures for common stock for

(a) income before extraordinary items and (b) net income.

The table below shows the stock price, earnings per share, and dividends per share for three

companies as of a recent date:

Earnings Dividends

Price per Share per Share

Bank of America Corp. $68.20 $5.91 $2.56

eBay Inc. 73.56 0.85 0.00

Coca-Cola Company 40.06 1.68 0.80

a. Determine the price-earnings ratio and dividend yield for the three companies. Round to

two decimal places.

b. Explain the differences in these ratios across the three companies.

The balance sheet for Collier Medical, Inc., at the end of the current fiscal year indicated the

following:

Bonds payable, 12% (issued in 1996, due in 2016) $1,500,000

Preferred $10 stock, $100 par 250,000

Common stock, $20 par 2,500,000

Income before income tax was $450,000, and income taxes were $125,000 for the current

year. Cash dividends paid on common stock during the current year totaled $100,000. The com-

mon stock was selling for $50 per share at the end of the year. Determine each of the following:

(a) number of times bond interest charges were earned, (b) earnings per share on common stock,

(c) price-earnings ratio, (d) dividends per share of common stock, and (e) dividend yield. Round

to two decimal places.

Retained earnings (in millions):

Beginning of year $5,885

Net income 1,299

Dividends declared on common stock (192)

End of year $6,992

Exercise 14-26

Earnings per share

Goal 5

b. Earnings per share on
common stock, $1.14

Exercise 14-27

Price-earnings ratio; dividend
yield

Goal 5

Exercise 14-28

Leverage of stockholder ratios

Goals4, 5

c. Price-earnings ratio, 20.83