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 $56 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			$1,412,650		$1,198,150
Add net income for year			325,600		245,400
Total			$1,738,250		$1,443,550
Deduct dividends
	On preferred stock		$10,500		$10,500
	On common stock		20,400		20,400
		Total	$30,900		$30,900
Retained earnings, December 31			$1,707,350		$1,412,650

Blige Inc.
Comparative Income Statement
For the Years Ended December 31, 2016 and 2015
	2016		2015
Sales	$2,056,055		$1,891,600
Sales returns and allowances	10,230		6,650
Sales	$2,045,825		$1,884,950
Cost of goods sold	700,800		644,740
Gross profit	$1,345,025		$1,240,210
Selling expenses	$470,840		$574,420
Administrative expenses	401,085		337,350
Total operating expenses	871,925		911,770
Income from operations	$473,100		$328,440
Other income	24,900		20,960
	$498,000		$349,400
Other expense (interest)	128,000		70,400
Income before income tax	$370,000		$279,000
Income tax expense	44,400		33,600
Net income	$325,600		$245,400

Blige Inc.
Comparative Balance Sheet
December 31, 2016 and 2015
			Dec. 31, 2016		Dec. 31, 2015
Assets
Current assets
	Cash		$377,350		$354,410
	Temporary investments		571,130		587,310
	Accounts receivable (net)		357,700		335,800
	Inventories		262,800		204,400
	Prepaid expenses		71,388		70,880
		Total current assets	$1,640,368		$1,552,800
Long-term investments			739,597		362,508
Property, plant, and equipment (net)			2,080,000		1,872,000
Total assets			$4,459,965		$3,787,308
Liabilities
Current liabilities			$512,615		$854,658
Long-term liabilities
	Mortgage note payable, 8%, due 2021		$720,000		$0
	Bonds payable, 8%, due 2017		880,000		880,000
		Total long-term liabilities	$1,600,000		$880,000
Total liabilities			$2,112,615		$1,734,658
Stockholders' Equity
Preferred $0.7 stock, $20 par			$300,000		$300,000
Common stock, $10 par			340,000		340,000
Retained earnings			1,707,350		1,412,650
	Total stockholders' equity		$2,347,350		$2,052,650
Total liabilities and stockholders' equity			$4,459,965		$3,787,308

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		%

Feedback

Answer 1

Answer to Requirement 1.

Working Capital = Current Assets – Current Liabilities
Working Capital = $1,640,368 - $512,615
Working Capital = $1,127,753

Answer to Requirement 2.

Current Ratio = Current Assets / Current Liabilities
Current Ratio = 1,640,368 / 512,615
Current Ratio = 3.2: 1

Answer to Requirement 3.

Quick ratio = (Current Assets – Inventories – Prepaid Expenses) / Current Liabilities
Quick ratio = (1,640,368 – 262,800 – 71,388) / 512,615
Quick ratio = 1,306,180 / 512,615
Quick ratio = 2.5: 1

Answer to Requirement 4.

Accounts Receivable Turnover = Net Sales / Average Accounts Receivable
Average Accounts Receivable = (357,700 + 335,800) / 2
Average Accounts Receivable = $346,750

Accounts Receivable Turnover = 2,045,825 / 346,750
Accounts Receivable Turnover = 5.9 times

Answer to Requirement 5.

Number of days’ Sales in Receivable = 365 / Accounts Receivable Turnover
Number of days’ Sales in Receivable = 365/5.9
Number of days’ Sales in Receivable = 61.9 days