Question

Twenty metrics of liquidity, Solvency, and Profitability The comparative financial statements of Automotive Solutions Inc. are as follows. The market price of Automotive Solutions Inc. common stock was $56 on December 31, 20Y8.

AUTOMOTIVE SOLUTIONS INC. Comparative Income Statement For the Years Ended December 31, 20Y8 and 20Y7 20Y8 20Y7

Sales $4,234,000 $3,901,040

Cost of goods sold (1,511,100) (1,390,210)

Gross profit $2,722,900 $2,510,830

Selling expenses $(975,730) $(1,167,160)

Administrative expenses (831,180) (685,480)

Total operating expenses (1,806,910) (1,852,640)

Operating income $915,990 $658,190

Other revenue and expense:

Other income 48,210 42,010

Other expense (interest) (296,000) (163,200) I

ncome before income tax $668,200 $537,000

Income tax expense (80,200) (64,700)

Net income $588,000 $472,300

AUTOMOTIVE SOLUTIONS INC. Comparative Statement of Stockholders’ Equity For the Years Ended December 31, 20Y8 and 20Y7 20Y8 20Y7 Preferred Stock Common Stock Retained Earnings Preferred Stock Common Stock Retained Earnings Balances, Jan. 1 $560,000 $640,000 $2,730,100 $560,000 $640,000 $2,306,000 Net income 588,000 472,300 Dividends: Preferred stock (9,800) (9,800) Common stock (38,400) (38,400) Balances, Dec. 31 $560,000 $640,000 $3,269,900 $560,000 $640,000 $2,730,100 AUTOMOTIVE SOLUTIONS INC. Comparative Balance Sheet December 31, 20Y8 and 20Y7 Dec. 31, 20Y8 Dec. 31, 20Y7 Assets Current assets: Cash $1,041,970 $497,060 Temporary investments 1,577,030 823,710 Accounts receivable (net) 751,900 708,100 Inventories 569,400 438,000 Prepaid expenses 197,126 99,410 Total current assets $4,137,426 $2,566,280 Long-term investments 1,179,364 29,948 Property, plant, and equipment (net) 4,070,000 3,663,000 Total assets $9,386,790 $6,259,228 Liabilities Current liabilities $1,216,890 $289,128 Long-term liabilities: Mortgage note payable, 8%, due in 15 years $1,660,000 $0 Bonds payable, 8%, due in 20 years 2,040,000 2,040,000 Total long-term liabilities $3,700,000 $2,040,000 Total liabilities $4,916,890 $2,329,128 Stockholders' Equity Preferred $0.70 stock, $40 par $560,000 $560,000 Common stock, $10 par 640,000 640,000 Retained earnings 3,269,900 2,730,100 Total stockholders' equity $4,469,900 $3,930,100 Total liabilities and stockholders' equity $9,386,790 $6,259,228 Instructions: Determine the following measures for 20Y8. Round ratio values to one decimal place and dollar amounts to the nearest cent. For number of days' sales in receivables and number of days' sales in inventory, round intermediate calculations to the nearest whole dollar and final amounts to one decimal place. Assume there are 365 days in the year.

1. Working capital $ 2. Current ratio 3. Quick ratio 4. Accounts receivable turnover 5. Days' sales in receivables days 6. Inventory turnover 7. Days' sales in inventory days 8. Debt ratio % 9. Ratio of liabilities to stockholders' equity 10. Ratio of fixed assets to long-term liabilities 11. Times interest earned times 12. Times preferred dividends earned times 13. Asset turnover 14. Return on total assets % 15. Return on stockholders’ equity % 16. Return on common stockholders’ equity % 17. Earnings per share on common stock $ 18. Price-earnings ratio 19. Dividends per share of common stock $ 20. Dividend yield %

Answer 1

Answer to Part 1.
Working Capital = Current Assets – Current Liabilities
Working Capital = $4,137,426 - $1,216,890
Working Capital = $2,920,536

Answer to Part 2.
Current Ratio = Current Assets / Current Liabilities
Current Ratio = $4,137,426 / $1,216,890
Current Ratio = 3.4: 1

Answer to Part 3.
Quick Ratio = (Current Assets – Inventories – Prepaid Expenses) / Current Liabilities
Quick Ratio = ($4,137,426 - $569,400 - $197,126) / $1,216,890
Quick Ratio = $3,370,900 / $1,216,890
Quick Ratio = 2.8 : 1

Answer to Part 4.
Accounts Receivable Turnover = Sales / Average Accounts Receivable
Average Accounts Receivable = ($751,900 + $708,100) / 2
Average Accounts Receivable = $730,000

Accounts Receivable Turnover = $4,234,000 / $730,000
Accounts Receivable Turnover = 5.8 times

Answer to Part 5.
Days’ sales in Receivable = 365 / Accounts Receivable Turnover
Days’ sales in Receivable = 365 / 5.8
Days’ sales in Receivable = 62.9 days

Answer to Part 6.
Inventory Turnover = Cost of Goods Sold / Average Inventory
Average Inventory = ($569,400 + $438,000) / 2
Average Inventory = $503,700

Inventory Turnover = $1,511,100 / $503,700
Inventory Turnover = 3.0 times