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)
Income 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

1. Working capital - Current Assets - Current Liabilities

Current Assets = 4,137,426

Current Liabilities = 1,216,890

Working Capital = 4,137,426 - 1,216,890 = 2,920,536

2. Current Ratio = Current Assets / Current Liabilities

= 4,137,426 / 1,216,890 = 3.4 times

3. Quick Ratio = (Current Assets - Inventories) / Current Liabilities

= (4,137,426 - 569,400) / 1,216,890 = 2.93 times

4. Accounts Receivable turnover = Net Credit Sales / Average Receivables

Net Credit Sales = 4,234,000 (Assumed all on credit)

Average Receivables = Opening Receivables + Closing Receivables / 2

= (708100 + 751900) / 2 = 730,000

Receivables Turnover = 4,234,000 / 730,000 = 5.8 times

5. Days sales in receivable = 365 days / receivable turnover ratio = 365 / 5.8 = 63 days

6. Inventory turnover = Cost of goods sold / Average Stock

COGS = 1,511,100

Average Stock = (569,400 + 438,000) / 2 = 503,700

Inventory Turnover = 1511100 / 503700 = 3.0 times

7. Days sales in inventory = 365 days / Inventory Turnover = 365 / 3 = 122 days

8. Debt Ratio = Total Debt / Total Assets

Debt = 1,660,000 + 2,040,000 = 3,700,000

Debt Ratio = 3700000 / 9,386,790 = 39.4%

9. Debt Ratio = Total Liabilities / Stockholder;s equity

= 4,916,890 / 4469900 = 1.1 times

10. Fixed assets to lon term liab = Fixed Assets / Long term debt

Fixed Assets = Total Assets - Current Assets = 9,386,790 - 4,137,426 = $5,249,364

Long term debt = 3,700,000

Fixed assets to lon term liab = 5249364 / 3700000 = 1.4 times