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Problem - Financial Ratios for Assessing Liquidity - Comparative financial statements for Weller Corporation, a merchandising company, for the year ending December 31 appear below. The company did not issue any new common stock during the year. A total of 600,000 shares of common stock were outstanding. The interest rate on the bond payable was 10%, the income tax rate was 40%, and the dividend per share of common stock was $0.75 last year and $0.40 this year. The market value of the company's common stock at the end of this year was $25. All of the company's sales are on account.
Weller Corporation Comparative Balance Sheet (dollars in thousands)
This Year
Last Year
Assets
Current assets:
Cash
$1,180
$1,340
Accounts receivable, net
10,600
8,400
Inventory
12,200
10,800
Prepaid expenses
650
550
Total current assets
24,630
21,090
Property and equipment:
Land
10,300
Buildings and equipment, net
44,874
39,332
Total property and equipment
55,174
49,632
Total assets
$79,804
$70,722
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable
$18,600
$19,000
Accrued liabilities
1,050
820
Notes payable, short term
180
Total current liabilities
19,830
20,000
Long-term liabilities:
Bonds payable
8,300
Total liabilities
28,130
28,300
Stockholders' equity:
Common stock
600
Additional paid-in capital
4,000
Total paid-in capital
4,600
Retained earnings
47,074
37,822
Total stockholders' equity
51,674
42,422
Total liabilities and stockholders' equity
Weller Corporation Comparative Income Statement and Reconciliation (dollars in thousands)
Sales
$75,000
$64,000
Cost of goods sold
40,000
34,000
Gross margin
35,000
30,000
Selling and administrative expenses:
Selling expenses
11,300
10,100
Administrative expenses
6,700
Total selling and administrative expenses
18,000
16,800
Net operating income
17,000
13,200
Interest expense
830
Net income before taxes
16,170
12,370
Income taxes
6,468
4,948
Net income
9,702
7,422
Dividends to common stockholders
450
240
Net income added to retained earnings
9,252
7,182
Beginning retained earnings
30,640
Ending retained earnings
$47,074
$37,822
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2. Current ratio.
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