Question

Here is the income statement for Skysong, Inc. SKYSONG, INC. Income Statement For the Year Ended December 31, 2022 Sales revenue $404,100 Cost of goods sold 234,000 Gross profit 170,100 Expenses (including $16,700 interest and $26,400 income taxes) 83,500 Net income $ 86,600 Additional information: 1.Common stock outstanding January 1, 2022, was 24,700 shares, and 37,100 shares were outstanding at December 31, 2022. 2.The market price of Skysong stock was $14 in 2022. 3.Cash dividends of $22,900 were paid, $4,900 of which were to preferred stockholders. Compute the following measures for 2022.

Answer 1

Missing information:

(a) Earnings per share s (b) Price-earnings ratio (c) Payout ratio times (d) Times interest earned times

Answer:

a) Earnings per share = $2.64

(b) Price-earnings ratio = 5.3

(c) Payout ratio times (you can calculate 3 payout ratios, the third type which is cash dividend payout ratio cannot be calculated because there is not enough information):

• total payout ratio = 26.44%
• common stockholders' payout ratio = 22.03%

(d) Times interest earned times = 7.77

Explanation:

earnings per share (EPS) = (net income - preferred stock dividends) / average outstanding common shares

• net income = $86,600
• preferred dividends = $4,900
• average outstanding common stocks = (24,700 + 37,100) / 2 = 30,900

EPS = ($86,600 - $4,900) / 30,900 = $2.64

price earnings ratio = market price per share / earnings per share = $14 / $2.64 = 5.3

2 ways to calculate payout ratio times:

• total dividends / net Income = $22,900 / $86,600 = 26.44%
• or common stockholders payout ratio = ($22,900 - $4,900) / ($86,600 - $4,900) = $18,000 / $81,700 = 22.03%

times interest earned = EBIT / interest expense

EBIT = net income + interest expense + income taxes = $86,600 + $16,700 + $26,400 = $129,700

times interest earned = $129,700 / $16,700 = 7.77