(Solved by Humans)-PROBLEM 14–12 Financial Ratios for Common Shareholders [LO2] Refer to the financial statements...

Paper Details

  PROBLEM 14–12 Financial Ratios for Common Shareholders [LO2] Refer to the financial statements and other data in Problem 14–11. Assume that you have just inherited several hundred shares of Modern Building Supply. Not being acquainted with the company, you decide to do some analytical work before making a decision about whether to retain or sell the shares you have  inherited.           Required: 1.              You decide first to assess how well the company is doing from the perspective of the common shareholders. For both this year and last year, compute the following: a.       The earnings per share. b.       The dividend yield ratio for common shares. The company’s common shares are cur- rently selling for $45 per share; last year they sold for $36 per share. c.       The dividend payout ratio for common shares. d.      The price–earnings ratio. How do investors regard Modern Building Supply as com- pared to other companies in the industry? Explain. e.       The book value per common share. Does the difference between market value and book value suggest that the shares at their current price are too high? Explain. 2.              You decide to assess the company’s rate of return next. a.       Compute the return on total assets for both this year and last year. (Total assets at the beginning of last year were $2,700,000.) b.       Compute the return on common shareholders’ equity for both this year and last year. (Shareholders’ equity at the beginning of last year was $1,786,000.) c.       Is the company’s financial leverage positive or negative? Explain. 3.              Based on your analysis (and assuming that you have no immediate need for cash), would you retain or sell the shares you have inherited? Explain.