Five Measures of The ability of a company to make its periodicinterest payments and repay the face amount of debt atmaturity.Solvency or The ability of a firm to generateearnings.Profitability
The balance sheet for Garcon Inc. at the end of the currentfiscal year indicated the following:
| Bonds payable, 7% | $1,900,000 |
| Preferred $10 stock, $100 par | 273,000 |
| Common stock, $10 par | 2,184,000.00 |
Income before income tax was $545,300, and income taxes were$81,200 for the current year. Cash dividends paid on common stockduring the current year totaled $72,072. The common stock wasselling for $22 per share at the end of the year.
Determine each of the following. Round answers to one decimalplace, except for dollar amounts which should be rounded to thenearest whole cent. Use the rounded answers for subsequentrequirements, if required.
| a. A ratio that measures the risk thatinterest payments will not be made if earnings decrease, calculatedas income before income tax and interest expense divided byinterest expense.Times interest earned ratio | | times |
| b. The profitability ratio of net incomeavailable to common stockholders to the number of common sharesoutstanding.Earnings per share on common stock | $ | |
| c. The ratio of the market price per share ofcommon stock, at a specific date, to the annual earnings pershare.Price-earnings ratio | | |
| d. Measures the extent to which earnings arebeing distributed to common stockholders.Dividends per share ofcommon stock | $ | |
| e. A ratio, computed by dividing the annualdividends paid per share of common stock by the market price pershare at a specific date, that indicates the rate of return tostockholders in terms of cash dividend distributions.Dividendyield | |
