Compute the debt to equity ratio and return on equity ratio

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Reference no: EM13913966

AccoUntinG Connection- An investor is considering investing in the long- term bonds and common stock of Companies A and B. Both firms operate in the same industry. Both also pay a dividend per share of $8 and have a yield of 10 percent on their long-term bonds. Other data for the two firms follow.

Chapter 14: Financial Statement Analysis

	Company A	Company B
Total assets	$4,800,000	$2,160,000
Total liabilities	2,160,000	1,188,000
Prior year stockholders' equity	2,120,000	750,000
Income before income taxes	576,000	259,200
Interest expense	194,400	106,920
Net income	136,800	74,800
Earnings per share	6.40	10.00
Market price of common stock	80.00	95.00

Compute the debt to equity ratio, return on equity ratio, interest coverage ratio, and price/earnings (P/E) ratio, as well as the dividend yield, and comment on the results. (Round to one decimal place.)

Text Book: Financial and Managerial Accounting By Belverd Needles, Marian Powers, Susan V. Crosson.

Reference no: EM13913966

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