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Tejada Company manufactures backpacks. During 2012, Tejada issued bonds at 10% interest and used the cash proceeds to purchase treasury stock. The following financial information is available for Tejada Company for the years 2012 and 2011.
Instructions
(a) Use the information above to calculate the following ratios for both years: (i) return on assets ratio, (ii) return on common stockholders’ equity ratio, (iii) payout ratio, (iv) debt to total assets ratio, and (v) times interest earned ratio.
(b) Referring to your findings in part (a), discuss the changes in the company’s profitability from 2011 to 2012.
(c) Referring to your findings in part (a), discuss the changes in the company’s solvency from 2011 to 2012.
(d) Based on your findings in (b), was the decision to issue debt to purchase common stock a wise one?
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