Question

Measures of liquidity, Solvency, and Profitability

The comparative financial statements of Marshall Inc. are as follows. The market price of Marshall common stock was $ 69 on December 31, 20Y2.

Marshall Inc.
Comparative Retained Earnings Statement
For the Years Ended December 31, 20Y2 and 20Y1
			20Y2		20Y1
Retained earnings, January 1			$3,577,150		$3,023,350
Net income			851,200		619,300
Total			$4,428,350		$3,642,650
Dividends:
	On preferred stock		$13,300		$13,300
	On common stock		52,200		52,200
		Total dividends	$65,500		$65,500
Retained earnings, December 31			$4,362,850		$3,577,150

Marshall Inc.
Comparative Income Statement
For the Years Ended December 31, 20Y2 and 20Y1
	20Y2		20Y1
Sales	$5,869,200		$5,407,620
Cost of goods sold	2,014,800		1,853,620
Gross profit	$3,854,400		$3,554,000
Selling expenses	$1,379,950		$1,691,830
Administrative expenses	1,175,520		993,610
Total operating expenses	$2,555,470		$2,685,440
Income from operations	$1,298,930		$868,560
Other revenue	68,370		55,440
	$1,367,300		$924,000
Other expense (interest)	400,000		220,000
Income before income tax	$967,300		$704,000
Income tax expense	116,100		84,700
Net income	$851,200		$619,300

Marshall Inc.
Comparative Balance Sheet
December 31, 20Y2 and 20Y1
			20Y2		20Y1
Assets
Current assets
	Cash		$1,349,260		$807,460
	Marketable securities		2,042,130		1,338,070
	Accounts receivable (net)		1,007,400		949,000
	Inventories		759,200		584,000
	Prepaid expenses		255,269		161,490
		Total current assets	$5,413,259		$3,840,020
Long-term investments			1,671,726		575,872
Property, plant, and equipment (net)			5,500,000		4,950,000
Total assets			$12,584,985		$9,365,892
Liabilities
Current liabilities			$1,592,135		$1,408,742
Long-term liabilities:
	Mortgage note payable, 8%		$2,250,000		$0
	Bonds payable, 8%		2,750,000		2,750,000
		Total long-term liabilities	$5,000,000		$2,750,000
Total liabilities			$6,592,135		$4,158,742
Stockholders' Equity
Preferred $0.70 stock, $40 par			$760,000		$760,000
Common stock, $10 par			870,000		870,000
Retained earnings			4,362,850		3,577,150
Total stockholders' equity			$5,992,850		$5,207,150
Total liabilities and stockholders' equity			$12,584,985		$9,365,892

Required:

Determine the following measures for 20Y2, rounding to one decimal place, except for dollar amounts, which should be rounded to the nearest cent. Use the rounded answer of the requirement for subsequent requirement, if required. Assume 365 days a year.

1. Working capital	$
2. Current ratio
3. Quick ratio
4. Accounts receivable turnover
5. Number of days' sales in receivables		days
6. Inventory turnover
7. Number of days' sales in inventory		days
8. Ratio of fixed assets to long-term liabilities
9. Ratio of liabilities to stockholders' equity
10. Times interest earned
11. Asset turnover
12. Return on total assets		%
13. Return on stockholders’ equity		%
14. Return on common stockholders’ equity		%
15. Earnings per share on common stock	$
16. Price-earnings ratio
17. Dividends per share of common stock	$
18. Dividend yield		%

Answer 1

Answer 1.

Working Capital = Current Assets - Current Liabilities
Working Capital = $5,413,259 - $1,592,135
Working Capital = $3,821,124

Answer 2.

Current Ratio = Current Assets / Current Liabilities
Current Ratio = $5,413,259 / $1,592,135
Current Ratio = 3.4

Answer 3.

Quick Ratio = (Current Assets - Inventories - Prepaid Expenses) / Current Liabilities
Quick Ratio = ($5,413,259 - $759,200 - $255,269) / $1,592,135
Quick Ratio = 2.8

Answer 4.

Average Accounts Receivable = (Beginning Accounts Receivable + Ending Accounts Receivable) / 2
Average Accounts Receivable = ($949,000 + $1,007,400) / 2
Average Accounts Receivable = $978,200

Accounts Receivable Turnover = Sales / Average Accounts Receivable
Accounts Receivable Turnover = $5,869,200 / $978,200
Accounts Receivable Turnover = 6.0

Answer 5.

Number of Days’ Sales in Receivables = 365 / Accounts Receivable Turnover
Number of Days’ Sales in Receivables = 365 / 6.00
Number of Days’ Sales in Receivables = 60.8 days

Answer 6.

Average Inventories = (Beginning Inventories + Ending Inventories) / 2
Average Inventories = ($584,000 + $759,200) / 2
Average Inventories = $671,600

Inventory Turnover = Cost of Goods Sold / Average Inventories
Inventory Turnover = $2,014,800 / $671,600
Inventory Turnover = 3.0

Answer 7.

Number of Days’ Sales in Inventory = 365 / Inventory Turnover
Number of Days’ Sales in Inventory = 365 / 3.00
Number of Days’ Sales in Inventory = 121.7 days