Concept explainers
The following information has been gathered for Malette Manufacturing:
Assume that the firm has no common stock equivalents. The tax rate is 34%.
Required:
- 1. Compute the return on assets.
- 2. Compute the return on common stockholders’ equity.
- 3. Compute the earnings per share.
- 4. Compute the price-earnings ratio.
- 5. Compute the dividend yield.
- 6. Compute the dividend payout ratio.
1.
Calculate return on assets.
Answer to Problem 58P
Return on assets is 0.088 or 8.8%.
Explanation of Solution
Profitability Ratio
These ratios evaluate a firm’s ability to earn profits. They help the stakeholders of the company to measure the degree to which funds invested by them are efficiently used. Some of the ratios calculated return on sales, total assets and stockholder’s equity.
Use the following formula to compute return on assets:
Substitute the values in the above formula:
Therefore, return on assets is 8.8%.
2.
Calculate return stockholders’ equity.
Answer to Problem 58P
Return on stockholders’ equity is 0.23 or 23%
Explanation of Solution
Use the following formula to compute return stockholders’ equity:
Substitute the values in the above formula:
Therefore, return on stockholders’ equity is 0.23 or 23%.
3.
Calculate earnings per share.
Answer to Problem 58P
Earnings per share is $5.75 per share
Explanation of Solution
Use the following formula to compute earnings per share:
Substitute the values in the above formula:
Therefore, earnings per share are $5.75 per share.
4.
Calculate price earnings ratio.
Answer to Problem 58P
Price earnings ratio is 6.96.
Explanation of Solution
Use the following formula to compute price earnings ratio:
Substitute the values in the above formula:
Therefore, price earnings ratio is 6.96.
5.
Calculate dividend yield.
Answer to Problem 58P
Divided yield is 0.0375 or 3.75%.
Explanation of Solution
Use the following formula to compute dividend yield:
Substitute the values in the above formula:
Therefore, dividend yield is 0.0375 or 3.75%.
Working notes
Calculation of dividend per common share:
6.
Calculate dividend payout ratio.
Answer to Problem 58P
Dividend payout ratio is 0.26.
Explanation of Solution
Use the following formula to compute dividend payout ratio:
Substitute the values in the above formula:
Therefore, dividend payout ratio is 0.26.
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Chapter 15 Solutions
Managerial Accounting: The Cornerstone of Business Decision-Making
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