Question

Here is the income statement for Marin Inc.

Sales revenue $445,000
Cost of goods sold 230200
Gross profit 215,100
Expenses (including $14,900 interest and $20,600 income taxes) 79,800
Net income $ 135,300
Additional information:
1. Common stock outstanding January 1, 2022, was 25,700 shares, and 39,000 shares were outstanding at December 31,2022
2. The market price of Marin stock was $11.80 in 2022.
3. Cash dividends of $23,489 were paid, $5,900 of which were to preferred stockholders.
Compute the following measures for 2022. (Round earnings per share to 2 decimal places, e. 1.83 and all other answers to 1 . decimal place, e.8. 1.8 or 2.5% ) (a) Earnings per share (b) Price-earnings ratio Itimes (c) Payout ratio % (d) Times interest earned times

Answer 1

Earnings per share for Marin Inc. is approximately $4.00, price-earnings ratio is around 2.95 times, payout ratio is about 13.6%, and times interest earned is approximately 11.5 times.

Step-by-step explanation:

To address the student's question regarding Marin Inc.'s financial measures for 2022, here's how to calculate each:

1. Earnings per share (EPS) is computed by subtracting preferred dividends from net income and then dividing by the weighted average number of common shares outstanding. With a net income of $135,300 and $5,900 in preferred dividends, the amount available to common shareholders is $129,400. The weighted average number of common shares, considering there were 25,700 shares initially and 39,000 at the end, is calculated by taking the average of these two numbers since no information is provided on when additional shares were issued. Assuming they were issued evenly throughout the year, we have (25,700 + 39,000) / 2 = 32,350 average shares outstanding. Hence, EPS is $129,400 / 32,350, which rounds to approximately $4.00 per share.
2. Price-earnings ratio (P/E ratio) is determined by dividing the market price per share by the earnings per share. With a market price of $11.80 and an EPS of $4.00, the P/E ratio is $11.80 / $4.00, yielding 2.95 times.
3. The payout ratio is found by dividing the total cash dividends paid to common shareholders by the net income available to them. Deducting preferred dividends ($5,900) from total dividends ($23,489) leaves $17,589 for common shareholders. The payout ratio then is $17,589 / $129,400, resulting in approximately 13.6%.
4. To calculate the times interest earned (interest coverage ratio), we take the earnings before interest and taxes (EBIT) and divide it by the interest expense. EBIT can be estimated as net income plus interest and taxes, which in this case is $135,300 + $14,900 + $20,600 = $170,800. Divided by the interest expense of $14,900, the times interest earned is $170,800 / $14,900, which is approximately 11.5 times.