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 $ 56 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			$ 1,265,300		$ 1,075,600
Net income			300,000		220,300
Total			$1,565,300		$ 1,295,900
Dividends:
	On preferred stock		$ 9,800		$ 9,800
	On common stock		20,800		20,800
		Total dividends	$ 30,600		$ 30,600
Retained earnings, December 31			$ 1,534,700		$ 1,265,300

Marshall Inc.
Comparative Income Statement
For the Years Ended December 31, 20Y2 and 20Y1
	20Y2		20Y1
Sales	$ 1,768,425		$ 1,629,350
Cost of goods sold	613,200		564,140
Gross profit	$ 1,155,225		$ 1,065,210
Selling expenses	$ 387,380		$ 483,710
Administrative expenses	329,995		284,080
Total operating expenses	717,375		767,790
Income from operations	$ 437,850		$ 297,420
Other revenue	23,050		18,980
	$ 460,900		$ 316,400
Other expense (interest)	120,000		66,400
Income before income tax	$ 340,900		$ 250,000
Income tax expense	40,900		29,700
Net income	$ 300,000		$ 220,300

Marshall Inc.
Comparative Balance Sheet
December 31, 20Y2 and 20Y1
			Dec. 31, 20Y2		Dec. 31, 20Y1
Assets
Current assets
	Cash		$ 288,060		$ 332,730
	Marketable securities		435,980		551,390
	Accounts receivable (net)		321,200		299,300
	Inventories		248,200		189,800
	Prepaid expenses		54,496		66,550
		Total current assets	$ 1,347,936		$ 1,439,770
Long-term investments			757,994		316,868
Property, plant, and equipment (net)			1,950,000		1,755,000
Total assets			$ 4,055,930		$ 3,511,638
Liabilities
Current liabilities			$ 421,230		$ 816,338
Long-term liabilities
	Mortgage note payable, 8 %		$ 670,000		$ 0
	Bonds payable, 8 %		830,000		830,000
		Total long-term liabilities	$ 1,500,000		$ 830,000
Total liabilities			$ 1,921,230		$ 1,646,338
Stockholders' Equity
Preferred $ 0.70 stock, $ 20 par			$ 280,000		$ 280,000
Common stock, $ 10 par			320,000		320,000
Retained earnings			1,534,700		1,265,300
Total stockholders' equity			$ 2,134,700		$ 1,865,300
Total liabilities and stockholders' equity			$ 4,055,930		$ 3,511,638

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 asset - current liabilities

= 1347936 - 421230 = $ 926706

2.

current ratio = current asset / current liabilities = 1347936 / 421230 = 3.2

3.

quick ratio = (cash + accounts receivable + Marketable securities) / current liabilities  

= (288060 +435980 + 321200) / 421230 = 2.5

4.

accounts receivable turnover = net credit sales / average accounts receivable

= 1768425 / ( 321200 + 299300) = 5.7

5.

number of days sales's in receivable's = Number of days in year / accounts receivable turnover ratio

= 365 / 5.7 = 64 days

6.

Inventory turnover = cost of goods sold / average inventory

= 613200 / (248200+189800) = 2.8

7.

NUMBER of days sale's in inventory = (1/inventory turnover ratio ) X 365

= (1/2.80) X 365 = 130.4 days

8.

ratio of fixed asset to long term liabilities = fixed asset / long term liabilities

= 1950000 / 1500000 = 1.3

9

ratio of liability to stock holder equity = toal liabilities / stock holder equity

= 1921230 / 2134700 = .9

10.

time interest earned = EBIT / interest expense

= 460900 /120000 = 3.8

11.

Asset turnover = turover / average total assets

= 1768425 / ( 4055930 + 3511638) = .3