The financial statements of Trail Apparel include the following selected data (in millions):

($ in thousands, except stock price) 2021 2020

Sales $729,220 $754,458

Net income 16,800 14,520

Dividends 4,960 3,890

Stockholders' equity, end of year 240,150 225,450

Shares outstanding 41,000 36,000

Average stock price $5.80 4.40

Required: Calculate the following amounts for 2021:

1. Return on equity 3.6%

2. Dividend yield

3. Earnings per share

4. Price-earnings ratio

1. The Return on equity is 3.6%

2. The Dividend yield is 2.08%

3. The Earnings per share is $0.40

4. The Price-earnings ratio is 14.50

Explanation:

1. In order to calculate the Return on equity we would have to use the following formula:

Return on equity=Net Income/Average Equity

Average Equity = $240,150 + $225,450 = $465,600

Return on equity=$16,800/$465,600

Return on equity = 3.6%

2. In order to calculate the Dividend yield we would have to use the following formula:

Dividend yield = Dividend per share/Average Stock price

Dividend per share = 4,960/41000=$0.1209

Dividend yield=$0.1209/$5.80=2.08%

3. In order to calculate the Earnings per share we would have to use the following formula:

Earnings per share = Net Income/Shares Outstanding

Earnings per share=16,800/41,000=$0.40

4. In order to calculate the Price-earnings ratio we would have to use the following formula:

Price-earnings ratio=Average Stock Price/EPS

Price-earnings ratio=$5.80/$0.40=14.50