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 $ 68 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			$ 1,645,800		$ 1,388,300
Net income			395,200		284,300
Total			$2,041,000		$ 1,672,600
Dividends:
	On preferred stock		$ 6,300		$ 6,300
	On common stock		20,500		20,500
		Total dividends	$ 26,800		$ 26,800
Retained earnings, December 31			$ 2,014,200		$ 1,645,800

Marshall Inc.
Comparative Income Statement
For the Years Ended December 31, 20Y2 and 20Y1
	20Y2		20Y1
Sales	$ 2,227,230		$ 2,052,060
Cost of goods sold	825,630		759,580
Gross profit	$ 1,401,600		$ 1,292,480
Selling expenses	$ 448,500		$ 573,240
Administrative expenses	382,060		336,660
Total operating expenses	$830,560		$909,900
Income from operations	$ 571,040		$ 382,580
Other revenue	30,060		24,420
	$ 601,100		$ 407,000
Other expense (interest)	152,000		84,000
Income before income tax	$ 449,100		$ 323,000
Income tax expense	53,900		38,700
Net income	$ 395,200		$ 284,300

Marshall Inc.
Comparative Balance Sheet
December 31, 20Y2 and 20Y1
			20Y2		20Y1
Assets
Current assets
	Cash		$ 441,740		$ 441,190
	Marketable securities		668,580		731,110
	Accounts receivable (net)		423,400		401,500
	Inventories		321,200		248,200
	Prepaid expenses		83,576		88,240
		Total current assets	$ 1,938,496		$ 1,910,240
Long-term investments			1,071,484		696,871
Property, plant, and equipment (net)			2,280,000		2,052,000
Total assets			$ 5,289,980		$ 4,659,111
Liabilities
Current liabilities			$ 605,780		$ 1,193,311
Long-term liabilities:
	Mortgage note payable, 8%		$ 850,000		$ 0
	Bonds payable, 8%		1,050,000		1,050,000
		Total long-term liabilities	$ 1,900,000		$ 1,050,000
Total liabilities			$ 2,505,780		$ 2,243,311
Stockholders' Equity
Preferred $0.70 stock, $40 par			$ 360,000		$ 360,000
Common stock, $10 par			410,000		410,000
Retained earnings			2,014,200		1,645,800
Total stockholders' equity			$ 2,784,200		$ 2,415,800
Total liabilities and stockholders' equity			$ 5,289,980		$ 4,659,111

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 = Current Assets - Current Liabilities
Working Capital = $1,938,496 - $605,780
Working Capital = $1,332,716

Answer 2.

Current Ratio = Current Assets / Current Liabilities
Current Ratio = $1,938,496 / $605,780
Current Ratio = 3.2

Answer 3.

Quick Ratio = (Current Assets - Inventories - Prepaid Expenses) / Current Liabilities
Quick Ratio = ($1,938,496 - $321,200 - $83,576) / $605,780
Quick Ratio = 2.5

Answer 4.

Average Accounts Receivable = ($423,400 + $401,500) / 2
Average Accounts Receivable = $412,450

Accounts Receivable Turnover = Sales / Average Accounts Receivable
Accounts Receivable Turnover = $2,227,230 / $412,450
Accounts Receivable Turnover = 5.4 times

Answer 5.

Number of Days’ Sales in Receivables = 365 / Accounts Receivable Turnover
Number of Days’ Sales in Receivables = 365 / 5.40
Number of Days’ Sales in Receivables = 67.6 days

Answer 6.

Average Inventories = ($321,200 + $248,200) / 2
Average Inventories = $284,700

Inventory Turnover = Cost of Goods Sold / Average Inventories
Inventory Turnover = $825,630 / $284,700
Inventory Turnover = 2.9 times

Answer 7.

Number of Days’ Sales in Inventory = 365 / Inventory Turnover
Number of Days’ Sales in Inventory = 365 / 2.9
Number of Days’ Sales in Inventory = 125.9 days