Question

he comparative financial statements of Marshall Inc. are as follows. The market price of Marshall common stock was $82.60 on December 31, 20Y2.

Marshall Inc.

Comparative Retained Earnings Statement

For the Years Ended December 31, 20Y2 and 20Y1

1		20Y2	20Y1
2	Retained earnings, January 1	$3,704,000.00	$3,264,000.00
3	Net income	600,000.00	550,000.00
4	Total	$4,304,000.00	$3,814,000.00
5	Dividends:
6	On preferred stock	$10,000.00	$10,000.00
7	On common stock	100,000.00	100,000.00
8	Total dividends	$110,000.00	$110,000.00
9	Retained earnings, December 31	$4,194,000.00	$3,704,000.00

Marshall Inc.

Comparative Income Statement

For the Years Ended December 31, 20Y2 and 20Y1

1		20Y2	20Y1
2	Sales	$10,850,000.00	$10,000,000.00
3	Cost of goods sold	6,000,000.00	5,450,000.00
4	Gross profit	$4,850,000.00	$4,550,000.00
5	Selling expenses	$2,170,000.00	$2,000,000.00
6	Administrative expenses	1,627,500.00	1,500,000.00
7	Total operating expenses	$3,797,500.00	$3,500,000.00
8	Income from operations	$1,052,500.00	$1,050,000.00
9	Other income	99,500.00	20,000.00
10		$1,152,000.00	$1,070,000.00
11	Other expense (interest)	132,000.00	120,000.00
12	Income before income tax	$1,020,000.00	$950,000.00
13	Income tax expense	420,000.00	400,000.00
14	Net income	$600,000.00	$550,000.00

Marshall Inc.

Comparative Balance Sheet

December 31, 20Y2 and 20Y1

1		20Y2	20Y1
2	Assets
3	Current assets:
4	Cash	$1,050,000.00	$950,000.00
5	Marketable securities	301,000.00	420,000.00
6	Accounts receivable (net)	585,000.00	500,000.00
7	Inventories	420,000.00	380,000.00
8	Prepaid expenses	108,000.00	20,000.00
9	Total current assets	$2,464,000.00	$2,270,000.00
10	Long-term investments	800,000.00	800,000.00
11	Property, plant, and equipment (net)	5,760,000.00	5,184,000.00
12	Total assets	$9,024,000.00	$8,254,000.00
13	Liabilities
14	Current liabilities	$880,000.00	$800,000.00
15	Long-term liabilities:
16	Mortgage note payable, 6%,	$200,000.00	$0.00
17	Bonds payable, 4%,	3,000,000.00	3,000,000.00
18	Total long-term liabilities	$3,200,000.00	$3,000,000.00
19	Total liabilities	$4,080,000.00	$3,800,000.00
20	Stockholders’ Equity
21	Preferred 4% stock, $5 par	$250,000.00	$250,000.00
22	Common stock, $5 par	500,000.00	500,000.00
23	Retained earnings	4,194,000.00	3,704,000.00
24	Total stockholders’ equity	$4,944,000.00	$4,454,000.00
25	Total liabilities and stockholders’ equity	$9,024,000.00	$8,254,000.00

Determine the following measures for 20Y2 (round to one decimal place, including percentages, except for per-share amounts):

1.	Working capital
2.	Current ratio
3.	Quick ratio
4.	Accounts receivable turnover
5.	Number of days’ sales in receivables
6.	Inventory turnover
7.	Number of days’ sales in inventory
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

	For the year 20Y2
1	Working capital	Curr Assets- C. Liab=		2464000	880000	1584000
2	Current ratio	C.Assets/C.liabilities=2464000/880000=				2.8
3	Quick ratio	Quick Assets/C.liabilities=			2.2
4	Accounts receivable turnover	Sales/Avg Receivales			20.0
5	Number of days’ sales in receivables	19.4	days sales
6	Inventory turnover	Sales/Avg Inventory
7	Number of days’ sales in inventory	27.1	days sales
8	Ratio of fixed assets to long-term liabilities	1.8
9	Ratio of liabilities to stockholders’ equity	0.6
10	Times interest earned	8.7	times
11	Asset turnover	1.2
12	Return on total assets	6.6%
13	Return on stockholders’ equity	12.1%
14	Return on common stockholders’ equity	12.8%
15	Earnings per share on common stock	$                       5.9
16	Price-earnings ratio	14.0
17	Dividends per share of common stock	$                       1.0
18	Dividend yield	1.2%
	WORKING NOTES:
3	Quick assets = Cash+ Receivables+marketable securities
	$1,936,000
4	Average Accts receivable	542500	(2 years receivable/2)
5	Number of days’ sales in receivables
	Total sales	$10,850,000
	per day sales	$30,138.9	(total/360)
	Receivables	$585,000
	Number of days’ sales in receivables	19.4
6	Inventory turnover	Sales/Avg Inventory
	avg inventory	$400,000	(2 years inventory/2)
	Inventory turnover	27.125
8	Ratio of fixed assets to long-term liabilities	1.8	(FA/LT Liab)
	Fixed assets	$5,760,000
	LT liabilities	$3,200,000
9	Ratio of liabilities to stockholders’ equity	0.6	(LT Liab/Equity)
	Long term liabilities	$3,200,000
	Equity	$4,944,000
10	Times interest earned	EBIT/Interest charges		8.727273
	EBIT (Income before int & tax)	$1,152,000
	Interest	$132,000
11	Asset turnover
	Sales / Total assets	1.202349291
12	Return on total assets
	Net income/total assets	0.066489362
	Net income	$600,000
	Total assets	$9,024,000
13	Return on stockholders’ equity
	Net income/shareholders equity	0.121359223
	Net income	$600,000
	Equity	$4,944,000
14	Return on common stockholders’ equity
	Net income/ common shareholders equity	0.127822752
	Net income	$600,000
	common shareholders equity	$4,694,000
15	Earnings per share on common stock
	Net income after tax	$600,000
	Less:Pref dividend @4% on 250,000	$10,000
	Earnings for common stock holders	$590,000
	No.of common stock	100000	(500000/5)
	EPS	$5.90	(590000/100000)
16	Price earnings ratio	14.0	(Market price/EPS)
	Market price of share	$82.60
	EPS	$5.90
17	Dividends per share of common stock
	Total dividends to common stock holders	$100,000
	No.of common stock	100000	(500000/5)
	Dividends per share of common stock	$1.0
18	Dividend yield
	dividend per share/ market price of share	1.2%
	Dividends per share of common stock	$1.0
	Market price of share	$82.60