Question: During a recent period, the fast-food
During a recent period, the fast-food chain Wendy’s International purchased many treasury shares. This caused the number of shares outstanding to fall from 124 million to 105 million. The following information was drawn from the company’s financial statements (in millions).
Instructions:
Use the information provided to answer the following questions.
(a) Compute earnings per share, return on common stockholders’ equity, and return on assets for both years. Discuss the change in the company’s profitability over this period.
(b) Compute the dividend payout ratio. Also compute the average cash dividend paid per share of common stock (dividends paid divided by the average number of common shares outstanding). Discuss any change in these ratios during this period and the implications for the company’s dividend policy.
(c) Compute the debt to assets ratio and times interest earned. Discuss the change in the company’s solvency.
(d) Based on your findings in (a) and (c), discuss to what extent any change in the return on common stockholders’ equity was the result of increased reliance on debt.
(e) Does it appear that the purchase of treasury stock and the shift toward more reliance on debt were wise strategic moves?
Transcribed Image Text:
Information for the Information for the Year after Purchase Year before Purchase of Treasury Stock $ 193.6 2,076.0 2,016.9 1,029.8 1,078.0 1,046.3 939.0 of Treasury Stock $ 123.4 1,837.9 1,889.8 1,068.1 Net income Total assets Average total assets Total common stockholders' equity Average common Stockholders' equity Total liabilities Average total liabilities Interest expense Income taxes Cash provided by operations Cash dividends paid on common stock Preferred stock dividends Average number of common shares outstanding 1,126.2 769.9 763.7 19.8 30.2 113.7 84.3 305.2 233.8 26.8 31.0 109.7 119.9
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