You complete a question previously 15-16 that had an excel attached. Is the company?s financial leverage positive or negative? Explain.

Student Name: Kevin Buccola Class: ACC-350 Problem 15-16 HEDRICK COMPANY Rates of Return 1a. This Year $280,000 84,000 $364,000 $5,330,000 6.8% Correct! 1b. Net income Less preferred dividends Net income remaining for common Average total stockholders' equity Less average preferred stock Average common equity Return on common equity Last Year $168,000 70,000 $238,000 $4,640,000 5.1% Correct! $280,000 48,000 $232,000 Correct! $3,120,000 600,000 $2,520,000 9.2% Correct! Net income Add after-tax cost of interest: Total Average total assets Return on total assets $168,000 48,000 $120,000 Correct! $3,028,000 600,000 $2,428,000 4.9% Correct! HEDRICK COMPANY Stockholders' Well Being 2a. Net income remaining for common Avg. number of common shares outstanding Earnings per share 2b. Dividends per share Market price per share Dividend yield ratio 2c. Dividends per share Earnings per share Dividend payout ratio 2d. Market price per share Earnings per share Price-earnings ratio 2e. Stockholders' equity Less preferred stock Common stockholders' equity Number of common shares Book value per share 2f. Gross margin Sales Gross margin percentage $232,000 50,000 $4.64 Correct! $120,000 50,000 $2.40 Correct! $1.44 $36.00 4.0% Correct! $0.72 $20.00 3.6% Correct! $1.44 $4.64 31.0% Correct! $0.72 $2.40 30.0% Correct! $36.00 $4.64 7.8 Correct! $20.00 $2.40 8.3 Correct! $3,200,000 600,000 $2,600,000 50,000 $52.00 Correct! $3,040,000 600,000 $2,440,000 50,000 $48.80 Correct! $1,050,000 $5,250,000 20.0% Correct! $860,000 $4,160,000 20.7% Correct! 3. HEDRICK COMPANY Ratios Current Assets Current Liabilities Working capital Current Assets Current Liabilities Current ratio Current Assets - INV-Prepaid Exp Current Liabilities Acid-test ratio AVG Acct Receivables Sales Number of Days Average collection period Avg Inv Cost of goods sold Number of Days Average sales period Total liabilities Total Shareholders Equity Debt-to-equity ratio Net Operating Income Interest Expense Times interest earned This Year $2,600,000 $1,300,000 $1,300,000 Correct! $2,600,000 $1,300,000 2.00 Correct! $1,220,000 $1,300,000 0.94 Correct! $750,000 $5,250,000 365.0 52 days Correct! $1,050,000 $4,200,000 365.0 91 days Correct! $2,500,000 $3,200,000 0.78 Correct! $520,000 $120,000 4.3 Correct! Last Year $1,980,000 $920,000 $1,060,000 Correct! $1,980,000 $920,000 2.15 Correct! $1,120,000 $920,000 1.22 Correct! $560,000 $4,160,000 365.0 49 days Correct! $720,000 $3,300,000 365.0 80 days Correct! $1,920,000 $3,040,000 0.63 Correct! $340,000 $100,000 3.4 Correct! Given Data SP15-16: Requested loan amount $1,000,000 HEDRICK COMPANY Comparative Balance Sheet This Year Last Year Assets Current assets: Cash Marketable securities Accounts receivable, net Inventory Prepaid expenses Total current assets Plant and equipment, net Total assets $320,000 900,000 1,300,000 80,000 2,600,000 3,100,000 $5,700,000 $420,000 100,000 600,000 800,000 60,000 1,980,000 2,980,000 $4,960,000 Liabilities and Stockholders' Equity Liabilities: Current liabilities $1,300,000 Bonds payable, 10% 1,200,000 Total liabilities 2,500,000 Stockholders' equity: Preferred stock, 8%, $30 par value 600,000 Common stock, $40 par value 2,000,000 Retained earnings 600,000 Total stockholders' equity 3,200,000 Total liabilities and stockholders' equity $5,700,000 $920,000 1,000,000 1,920,000 600,000 2,000,000 440,000 3,040,000 $4,960,000 HEDRICK COMPANY Comparative Income Statement and Reconciliation Sales (all on account) Cost of goods sold Gross margin Selling and administrative expenses Net operating income Interest expense Net income before taxes Income taxes (30%) Net income Dividends paid: Preferred stock Common stock Total dividends paid Net income retained Retained earnings, beginning of year Retained earnings, end of year This Year $5,250,000 4,200,000 1,050,000 530,000 520,000 120,000 400,000 120,000 280,000 Last Year $4,160,000 3,300,000 860,000 520,000 340,000 100,000 240,000 72,000 168,000 48,000 72,000 120,000 160,000 440,000 $600,000 48,000 36,000 84,000 84,000 356,000 $440,000 Tax rate Percentage increase in sales Common stock price, last year Common stock price, this year 30% 25% $20 $36 Typical ratios: Current ratio Acid-test ratio Average collection period Average sale period Return on assets Debt-to-equity ratio Times interest earned ratio Price-earnings ratio 2.3 1.2 31 days 60 days 9.5% 0.65 5.7 10 Total assets beginning last year Stockholders' equity beginning last year Accounts receivable, beginning of last year Inventory, beginning of last year $4,320,000 $3,016,000 $520,000 $640,000