Question

Nineteen Measures of Solvency and Profitability

The comparative financial statements of Blige Inc. are as follows. The market price of Blige Inc. common stock was $54 on December 31, 2016.

Blige Inc.
Comparative Retained Earnings Statement
For the Years Ended December 31, 2016 and 2015
			2016		2015
Retained earnings, January 1			$3,212,400		$2,711,800
Add net income for year			710,000		555,400
Total			$3,922,400		$3,267,200
Deduct dividends
	On preferred stock		$11,900		$11,900
	On common stock		42,900		42,900
		Total	$54,800		$54,800
Retained earnings, December 31			$3,867,600		$3,212,400

Blige Inc.
Comparative Income Statement
For the Years Ended December 31, 2016 and 2015
	2016		2015
Sales	$4,734,240		$4,355,500
Sales returns and allowances	23,550		15,310
Sales	$4,710,690		$4,340,190
Cost of goods sold	1,833,030		1,686,390
Gross profit	$2,877,660		$2,653,800
Selling expenses	$955,370		$1,180,720
Administrative expenses	813,830		693,440
Total operating expenses	1,769,200		1,874,160
Income from operations	$1,108,460		$779,640
Other income	58,340		49,760
	$1,166,800		$829,400
Other expense (interest)	360,000		198,400
Income before income tax	$806,800		$631,000
Income tax expense	96,800		75,600
Net income	$710,000		$555,400

Blige Inc.
Comparative Balance Sheet
December 31, 2016 and 2015
			Dec. 31, 2016		Dec. 31, 2015
Assets
Current assets
	Cash		$878,950		$685,870
	Temporary investments		1,330,300		1,136,600
	Accounts receivable (net)		897,900		846,800
	Inventories		671,600		511,000
	Prepaid expenses		166,294		137,170
		Total current assets	$3,945,044		$3,317,440
Long-term investments			1,392,916		-491,121
Property, plant, and equipment (net)			5,850,000		5,265,000
Total assets			$11,187,960		$8,091,319
Liabilities
Current liabilities			$1,360,360		$938,919
Long-term liabilities
	Mortgage note payable, 8%, due 2021		$2,020,000		$0
	Bonds payable, 8%, due 2017		2,480,000		2,480,000
		Total long-term liabilities	$4,500,000		$2,480,000
Total liabilities			$5,860,360		$3,418,919
Stockholders' Equity
Preferred $0.7 stock, $40 par			$680,000		$680,000
Common stock, $10 par			780,000		780,000
Retained earnings			3,867,600		3,212,400
	Total stockholders' equity		$5,327,600		$4,672,400
Total liabilities and stockholders' equity			$11,187,960		$8,091,319

Required:

Determine the following measures for 2016, 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. Number of times interest charges are earned
11. Number of times preferred dividends are earned
12. Ratio of sales to assets
13. Rate earned on total assets		%
14. Rate earned on stockholders' equity		%
15. Rate earned on common stockholders' equity		%
16. Earnings per share on common stock	$
17. Price-earnings ratio
18. Dividends per share of common stock	$
19. Dividend yield		%

Check My Work1 more Check My Work uses remaining.

Answer 1

Answer to Requirement 1.
Working Capital = Current Assets – Current Liabilities
Working Capital = $3,945,044.00 - $1,360,360.00
Working Capital = $2,584,684.00

Answer to Requirement 2.
Current Ratio = Current Assets / Current Liabilities
Current Ratio = $3,945,044 / $1,360,360
Current Ratio = 2.9: 1

Answer to Requirement 3.
Quick Ratio = (Current Assets – Inventories – Prepaid Expenses) / Current Liabilities
Quick Ratio = ($3,945,044 - $671,600 - $166,294) / $1,360,360
Quick Ratio = $3,107,150 / $1,360,360
Quick Ratio = 2.3: 1

Answer to Requirement 4.
Accounts Receivable Turnover = Sales / Average Accounts Receivable
Average Accounts Receivable = ($897,900 + $846,800) / 2
Average Accounts Receivable = $872,350

Accounts Receivable Turnover = $4,710,690 / $872,350
Accounts Receivable Turnover = 5.4 times

Answer to Requirement 5.
Number of days’ sales in Receivable = 365 / Accounts Receivable Turnover
Number of days’ sales in Receivable = 365 / 5.4
Number of days’ sales in Receivable = 67.59 days or 68 days