KINGBIRD, INC. Income Statement For the Year Ended December 31, 2020

Sales revenue $446,700
Cost of goods sold 202,300
Gross profit 244,400
Expenses (including $16,300 interest and $20,800 income taxes) 70,800
Net income $ 173,600

Additional information:

1. Common stock outstanding January 1, 2020, was 27,200 shares, and 38,600 shares were outstanding at December 31, 2020.
2. The market price of Kingbird stock was $15 in 2020.
3. Cash dividends of $21,700 were paid, $6,500 of which were to preferred stockholders.

Compute the following measures for 2020.

(a) Earnings per share
(b) Price-earnings ratio
(c) Payout ratio

Answer and Explanation:

The computation is shown below:

a. Earning per share

= (Net income - preferred dividend) ÷ (Weighted average number of outstanding shares)

= ($173,600 - $6,500) ÷ (27,200 shares + 38,600 shares) ÷ 2

= $167,100 ÷ 32,900 shares

= $5.08 per share

b. Price earnings ratio = Market price ÷ Earning per share

                                    = $15 / $5.08

                                    = 2.95

c. Payout ratio = Dividend paid ÷ Net income

= ($21,700 - $6,500) ÷ ($173,600)

= 8.76%

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