Question

Measures of liquidity,  Solvency and  Profitability

The comparative financial statements of Marshall Inc. are as follows. The market price of Marshall Inc. common stock was $ 63 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			$ 4,510,950		$ 3,795,450
Net income			980,000		777,400
Total			$ 5,490,950		$ 4,572,850
Dividends
	On preferred stock		$ 13,300		$ 13,300
	On common stock		48,600		48,600
		Total dividends	$ 61,900		$ 61,900
Retained earnings, December 31			$ 5,429,050		$ 4,510,950

Marshall Inc.
Comparative Income Statement
For the Years Ended December 31, 20Y2 and 20Y1
	20Y2		20Y1
Sales	$ 5,409,300		$ 4,983,820
Cost of goods sold	2,053,490		1,889,210
Gross profit	$ 3,355,810		$ 3,094,610
Selling expenses	$ 1,056,180		$ 1,309,200
Administrative expenses	899,710		768,890
Total operating expenses	1,955,890		2,078,090
Income from operations	$ 1,399,920		$ 1,016,520
Other income	73,680		64,880
	$ 1,473,600		$ 1,081,400
Other expense (interest)	360,000		198,400
Income before income tax	$ 1,113,600		$ 883,000
Income tax expense	133,600		105,600
Net income	$ 980,000		$ 777,400

Marshall Inc.
Comparative Balance Sheet
December 31, 20Y2 and 20Y1
			Dec. 31, 20Y2		Dec. 31, 20Y1
Assets
Current assets
	Cash		$ 1,151,630		$ 879,630
	Marketable securities		1,743,010		1,457,660
	Accounts receivable (net)		1,073,100		1,007,400
	Inventories		803,000		613,200
	Prepaid expenses		217,876		175,930
		Total current assets	$ 4,988,616		$ 4,133,820
Long-term investments			2,587,674		683,662
Property, plant, and equipment (net)			5,850,000		5,265,000
Total assets			$ 13,426,290		$ 10,082,482
Liabilities
Current liabilities			$ 1,467,240		$ 1,061,532
Long-term liabilities
	Mortgage note payable, 8 %		$ 2,020,000		$ 0
	Bonds payable, 8 %		2,480,000		2,480,000
		Total long-term liabilities	$ 4,500,000		$ 2,480,000
Total liabilities			$ 5,967,240		$ 3,541,532
Stockholders' Equity
Preferred $ 0.70 stock, $ 50 par			$ 950,000		$ 950,000
Common stock, $ 10 par			1,080,000		1,080,000
Retained earnings			5,429,050		4,510,950
	Total stockholders' equity		$ 7,459,050		$ 6,540,950
Total liabilities and stockholders' equity			$ 13,426,290		$ 10,082,482

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

1) Working capital= Current assets-Current liabilities

= $4988616-1467240

= $3521376

2) Current ratio= Current assets/Current liabilities

= $4988616/1467240

= 3.4

3) Quick assets= Current assets-Inventories-Prepaid expenses

= $4988616-803000-217876= $3967740

Quick ratio= Quick assets/Current liabilities

= $3967740/1467240

= 2.7

4) Average account receivable= $(1073100+1007400)/2= $1040250

Accounts receivable turnover= Net credit sales/Average account receivable

= $5409300/1040250

= 5.2

5) Number of days' sales in receivables= 365 days/Accounts receivable turnover

= 365/5.2

= 70.2 days

6) Average inventory= $(803000+613200)/2= $708100

Inventory turnover ratio= Cost of goods sold/Average inventory

= $2053490/708100

= 2.9 times

7) Number of days' sales in inventory= 365 days/Inventory turnover ratio

= 365/2.9

= 125.9 days

8) Ratio of fixed assets to long-term liabilities= Fixed assets/Long term liabilities

= $5850000/4500000

= 1.3

9) Ratio of liabilities to stockholders' equity= Total liabilities/Stockholders' equity

= $5967240/7459050

= 0.8

10) Times interest earned= Earning before Interest and Tax/Interest expense

= $1473600/360000

= 4.1

11) Average total assets= $(13426290+10082482)/2= $11754386

Asset turnover= Net sales/Average total assets

= $5409300/11754386

= 0.5

12) Return on total assets= Net income*100/Average total assets

= $980000*100/11754386

= 8.3%

13) Average stockholders’ equity= $(7459050+6540950)/2= $7000000

Return on stockholders’ equity= Net income*100/Average stockholders’ equity

= $980000*100/7000000

= 14%

14) Average common stockholders’ equity= $(1080000+1080000+5429050+4510950)/2= $6050000

Return on common stockholders’ equity= (Net income-Preferred dividend)*100/Average common stock equity

= $(980000-13300)*100/6050000= 16%

15) Average common stock shares= $(1080000+1080000/10)/2= 108000 shares

Earnings per share on common stock= (Net income-Preferred dividend)/Average common stock shares

= $(980000-13300)/108000

= $9

16) Price-earnings ratio= Market per share/Earnings per share on common stock

= $63/9

= 7

17) Dividends per share of common stock= Total dividend paid on common stock/Average number of common stock shares

= $48600/108000

= $0.5

18) Dividend yield= Dividend per share*100/Market price per share

= $0.5*100/63

= 0.8%