Page 576 - Accounting Principles (A Business Perspective)

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Analyzing and using the financial results—Dividend yield on common stock and payout
ratios
Investors often search for stock that fulfills their needs. To locate this stock, potential stockholders may use the

dividend yield on common stock ratio or the payout ratio on common stock. To demonstrate these ratios, consider
the 2000 annual report of Tyco International.
P Company and Subsidiary S Company
Consolidated Income Statement
For the year ended 2010 December 31
Revenue from sales $700,000
Cost of goods sold 430,000
Gross margin $270,000
Expenses (excluding depreciation and taxes) $180,000
Depreciation expense 12,400
Federal income tax expense 46,600 239,000
Net sales $31,000
Exhibit 114: Consolidated income statement
P Company and Subsidiary S Company
Consolidated statement of Retained Earnings
For the Year Ended 2010 December 31
Retained earnings, 2010 January 1 $54,000
Net income 31,000
Subtotal $85,000
Dividends 10,000
Retained earnings, 2010 December 31 $75,000
Exhibit 115: Consolidated statement of retained earnings
P Company and Subsidiary S Company
Consolidation Balance Sheet
2010 December 31
Assets
Current assets:
Cash $54,000
Accounts receivable, net 43,000
Merchandise inventory 76,000
Total current assets $173,000
Property, plant, and equipment:
Equipment, net $48,900
Building, net 94,700
Land 34,000
Total property, plant, and equipment 177,600
Goodwill 11,000
Total assets $361,600
Liabilities and stockholders' equity
Current liabilities:
Account payable $21,600
Notes payable 15,000
Total liabilities $36,600
Stockholders' equity:
Common stock $250,000
Retained earnings 75,000
Total stockholders' equity 325,000
Total liabilities and stockholders equity $361,600
Exhibit 116: Consolidated balance sheet (one year after acquisition
2000 1999
Dividend per share of common stock $ 0.05 $ 0.05
Current market price per share 53.81 50.25
Earnings per share 2.68 0.62
Investors use the dividend yield on common stock ratio as a tool to compare stocks. Some investors favor
stocks with a high dividend yield ratio and a high payout ratio. Other investors would rather have the corporation

Accounting Principles: A Business Perspective 577 A Global Text