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 $ 67 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			$3,346,500		$2,812,300
Net income			748,800		576,000
Total			$4,095,300		$3,388,300
Dividends:
	On preferred stock		$9,800		$9,800
	On common stock		32,000		32,000
		Total dividends	$41,800		$41,800
Retained earnings, December 31			$4,053,500		$3,346,500

Marshall Inc.
Comparative Income Statement
For the Years Ended December 31, 20Y2 and 20Y1
	20Y2		20Y1
Sales	$4,681,125		$4,312,980
Cost of goods sold	1,664,400		1,531,250
Gross profit	$3,016,725		$2,781,730
Selling expenses	$1,036,570		$1,265,580
Administrative expenses	883,005		743,280
Total operating expenses	$1,919,575		$2,008,860
Income from operations	$1,097,150		$772,870
Other revenue	57,750		49,330
	$1,154,900		$822,200
Other expense (interest)	304,000		167,200
Income before income tax	$850,900		$655,000
Income tax expense	102,100		79,000
Net income	$748,800		$576,000

Marshall Inc.
Comparative Balance Sheet
December 31, 20Y2 and 20Y1
			20Y2		20Y1
Assets
Current assets
	Cash		$917,340		$760,820
	Marketable securities		1,388,410		1,260,780
	Accounts receivable (net)		846,800		795,700
	Inventories		627,800		481,800
	Prepaid expenses		173,545		152,160
		Total current assets	$3,953,895		$3,451,260
Long-term investments			2,417,755		1,204,459
Property, plant, and equipment (net)			4,180,000		3,762,000
Total assets			$10,551,650		$8,417,719
Liabilities
Current liabilities			$1,198,150		$1,481,219
Long-term liabilities:
	Mortgage note payable, 8%		$1,710,000		$0
	Bonds payable, 8%		2,090,000		2,090,000
		Total long-term liabilities	$3,800,000		$2,090,000
Total liabilities			$4,998,150		$3,571,219
Stockholders' Equity
Preferred $0.70 stock, $50 par			$700,000		$700,000
Common stock, $10 par			800,000		800,000
Retained earnings			4,053,500		3,346,500
Total stockholders' equity			$5,553,500		$4,846,500
Total liabilities and stockholders' equity			$10,551,650		$8,417,719

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 = Total Current assets- Total current Liabilities

Working Capital = $3,953,895 - $1,198,150 = $2,755,745

2. Current Ratio = Total Current Assets/ Total Current Liabilities

Current Ratio = $3,953,895 / $1,198,150 = 3.3

3. Quick Ratio = Quick Assets/ Current Liabilities

Quick Ratio = $3,953,895 - $627,800 - $173,545 / $1,198,150 = 2.63

4. Accounts Receivable Turnover = Net credit sales/ Average accounts receivable

Accounts Receivable Turnover = $4,681,125/($846,800+$795,700)/2 = 5.7

5. No. of days sales in receivable = 365 / 5.7 = 64.03 days

6. Inventory Turnover = Cost of goods sold/ Average Inventory

Inventory Turnover = $1,664,400/($627,800+$481,800)/2 = 3

7. No. Of days sales in Inventory = 365 / 3 = 121.67 days

8. Ratio of Fixed assets to Long term Liabilities = Fixed assets / Long term Liabilities

Ratio of Fixed assets to Long term Liabilities = $4,180,000 / $3,800,000 = 1.1

9. Ratio of Liabilities to stockholders equity = Total Liabilities/ Total stockholders' equity

Ratio of Liabilities to stockholders equity = $4,998,150 / $5,553,500 = 0.9

10. Times interest earned = EBIT / Interest expense

Times interest earned = $1,154,900 / $304,000 = 3.8

11. Assets Turnover = Net Sales / Average Total assets

Assets Turnover = $4,681,125/($10,551,650+$8,417,719)/2 = 0.5

12. Return on total assets = EBIT/ Average Total assets

Return on total assets = $1,154,900/($10,551,650+$8,417,719)/2 = 12.2%

13. Return on stockholders equity = Net income/ Average stockholders equity

Return on stockholders' equity = $748,800/($5,553,500+$4,846,500)/2 = 14.4%

14. Return on common stockholders equity = Net Income- Preferred dividend/ Average common stockholders equity

Return on common stockholders equity = $748,800- $9,800/$4,500,000 = 16.42%

15. Earnings per share = Net income- Preferred dividend/ No. Of outstanding shares

Earnings per share = $748,800 - $9,800 /80,000 = $9.2375

16. Price earning Ratio = Market price per share / Earnings per share

Price earning Ratio = $67 / $9.2375 = 7.25

17. Dividends per share of common stock = Dividend on common stock / No. Of common shares

Dividend per share of common stock = $32,000 / 80,000 = $0.4

18. Dividend yield = Dividend per share on common stock/ Price per share

Dividend yield = $0.4 / $67 =0.59%

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