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			$2,541,175		$2,144,325
Net income			600,000		439,200
Total			$3,141,175		$2,583,525
Dividends:
	On preferred stock		$7,700		$7,700
	On common stock		34,650		34,650
		Total dividends	$42,350		$42,350
Retained earnings, December 31			$3,098,825		$2,541,175

Marshall Inc.
Comparative Income Statement
For the Years Ended December 31, 20Y2 and 20Y1
	20Y2		20Y1
Sales	$3,472,975		$3,199,820
Cost of goods sold	1,312,540		1,207,540
Gross profit	$2,160,435		$1,992,280
Selling expenses	$697,860		$883,830
Administrative expenses	594,465		519,070
Total operating expenses	$1,292,325		$1,402,900
Income from operations	$868,110		$589,380
Other revenue	45,690		37,620
	$913,800		$627,000
Other expense (interest)	232,000		128,000
Income before income tax	$681,800		$499,000
Income tax expense	81,800		59,800
Net income	$600,000		$439,200

Marshall Inc.
Comparative Balance Sheet
December 31, 20Y2 and 20Y1
			20Y2		20Y1
Assets
Current assets
	Cash		$777,630		$661,770
	Marketable securities		1,176,960		1,096,660
	Accounts receivable (net)		649,700		613,200
	Inventories		481,800		365,000
	Prepaid expenses		147,116		132,350
		Total current assets	$3,233,206		$2,868,980
Long-term investments			1,706,562		1,257,525
Property, plant, and equipment (net)			3,190,000		2,871,000
Total assets			$8,129,768		$6,997,505
Liabilities
Current liabilities			$950,943		$1,676,330
Long-term liabilities:
	Mortgage note payable, 8%		$1,300,000		$0
	Bonds payable, 8%		1,600,000		1,600,000
		Total long-term liabilities	$2,900,000		$1,600,000
Total liabilities			$3,850,943		$3,276,330
Stockholders' Equity
Preferred $0.70 stock, $50 par			$550,000		$550,000
Common stock, $10 par			630,000		630,000
Retained earnings			3,098,825		2,541,175
Total stockholders' equity			$4,278,825		$3,721,175
Total liabilities and stockholders' equity			$8,129,768		$6,997,505

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

	Formula		Ratio
1. Working capital	Current Assets - Current Liabilities		$2,282,263
2. Current ratio	Current Assets / Current Liabilities		3.40
3. Quick ratio	(Cash+ marketable securities+ accounts receivables)/ Current liabilities		2.74
4. Accounts receivable turnover	Net Sales / Average accounts receivables		5.5	Times
5. Number of days' sales in receivables	365 / Accounts receivable turnover		66	days
6. Inventory turnover	COGS / Average inventory		3.1	Times
7. Number of days' sales in inventory	365 / Inventory turnover		118	days
8. Ratio of fixed assets to long-term liabilities	Net Sales/ fixed assets		0.71
9. Ratio of liabilities to stockholders' equity	Total Liabilities / Stockholder's equity		0.90
10. Times interest earned	EBIT / interest		3.94	Times
11. Asset turnover	Net sales / Average Assets		0.46	Times
12. Return on total assets	Net income / Total Assets		7%	%
13. Return on stockholders’ equity	Net income / Stockholder's equity		14%	%
14. Return on common stockholders’ equity	Net income / Common Stockholder's equity		109%	%
15. Earnings per share on common stock	(Net income - preferred dividend)/ no. of common shares*	$	9.40
16. Price-earnings ratio	stock price / EPS		5.96	Times
17. Dividends per share of common stock	dividend on common stock / No. of common shares	$	0.55
18. Dividend yield	dividend / stock price		1%	%
*No. of common shares	= 630,000 / 10 = 63000