Question

1. Measures of liquidity, Solvency, and Profitability

   The comparative financial statements of Marshall Inc. are as follows. The market price of Marshall common stock was $ 63 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			$914,800		$773,200
   Net income			207,200		158,400
   Total			$1,122,000		$931,600
   Dividends:
   	On preferred stock		$6,300		$6,300
   	On common stock		10,500		10,500
   		Total dividends	$16,800		$16,800
   Retained earnings, December 31			$1,105,200		$914,800

   Marshall Inc.
   Comparative Income Statement
   For the Years Ended December 31, 20Y2 and 20Y1
   	20Y2		20Y1
   Sales	$1,421,310		$1,309,480
   Cost of goods sold	520,490		478,850
   Gross profit	$900,820		$830,630
   Selling expenses	$316,390		$385,430
   Administrative expenses	269,510		226,370
   Total operating expenses	$585,900		$611,800
   Income from operations	$314,920		$218,830
   Other revenue	16,580		13,970
   	$331,500		$232,800
   Other expense (interest)	96,000		52,800
   Income before income tax	$235,500		$180,000
   Income tax expense	28,300		21,600
   Net income	$207,200		$158,400

   Marshall Inc.
   Comparative Balance Sheet
   December 31, 20Y2 and 20Y1
   			20Y2		20Y1
   Assets
   Current assets
   	Cash		$364,490		$207,640
   	Marketable securities		551,660		344,080
   	Accounts receivable (net)		248,200		233,600
   	Inventories		189,800		146,000
   	Prepaid expenses		68,954		41,530
   		Total current assets	$1,423,104		$972,850
   Long-term investments			396,816		211,957
   Property, plant, and equipment (net)			1,320,000		1,188,000
   Total assets			$3,139,920		$2,372,807
   Liabilities
   Current liabilities			$444,720		$408,007
   Long-term liabilities:
   	Mortgage note payable, 8%		$540,000		$0
   	Bonds payable, 8%		660,000		660,000
   		Total long-term liabilities	$1,200,000		$660,000
   Total liabilities			$1,644,720		$1,068,007
   Stockholders' Equity
   Preferred $0.70 stock, $20 par			$180,000		$180,000
   Common stock, $10 par			210,000		210,000
   Retained earnings			1,105,200		914,800
   Total stockholders' equity			$1,495,200		$1,304,800
   Total liabilities and stockholders' equity			$3,139,920		$2,372,807

   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

1. Working Capital = Current Asset - Current Liabilities = $1,423,104 - $444,720 = $978,384 2. Current Ratio = Current Assets / Current Liabilities = $1,423,104 / $444,720 = $3.2 3. Quick Assets = $364,490 + $551,660 + $248,200 =$1,164,350 Quick Ratio = Quick Assets / Current Liabilities = $1,164,350 / $444,720 = 2.62 4. Average Account Receivable =($248,200 +$233,600)/2 =$240,900   

Accounts Receivable Turnover = Net Sales / Average Account Receivable   

= $1,421,310 / $240,900 = 5.9

5. Number of days sales in Receivables = 365 / Accounts Receivable Turnover = 365 / 5.9 = 61.9 Days

6. Average Inventory = ($189,800 +$149,000)/2=$167,900

Inventory Turnover Ratio = Cost of Goods Sold / Average Inventory

= $520,490 / $167,900 = 3.1

7. Number of days sales in Inventory = 365 / Inventory Turnover Ratio

= 365/3.1 = 117.7 days

8. Ratio of Fixed Assets to Long Term Liabilities = Total Fixed Assets / Long Term Liabilities  

= $1,320,000 / $1,200,000 = 1.1

9. Ratio of Liabilities to share holders equity = Total Liabilities / Shareholders Equity

= $1,644,720 / $1,495,200 = 1.1

10 . Time Interest Earned = (Income before Income Tax + Interest Expense ) / Interest Expense

= ($235,500 + $96,000) / $96,000 = 3.45

11. Average Total Asset = ($3,139,920 + $2,372,807)/2 = $2,756,363.5

Asset Turnover = Net Sales / Average Total Assets

= $1,421,310 / $2,756,363.5 = .52

12. Return on Total Assets = Net Income × 100 / Average Total Assets

= $(207,200 ×100)/$2,756,363.5

= 7.5%

13. Average Stockholders Equity = $1,495,200 + $1,304,800/2 = $1,400,000

Return on stockholders Equity = Net Income ×100 / Average Stockholders Equity

=$207,200 ×100 / $1,400,000 = 14.8%

14. Average Common stockholders Equity = ($210,000 + $1,105,200 + $210,000 + $914,800 )/2 = $1,220,000

Return on common stockholders equity = (Net Income - Prefered Dividend ) × 100 / Average Common Stockholders Equity

=( $207,200 - $6,300 ) × 100 / $1,220,000 = 16.47 %

15. Earnings Per Share on Common Stock = (Net Income - Prefered Dividend ) / Weighted Average Shares Outstanding

= ($207,200 - $6300) / 21,000 = $9.6

16.Price Warning Ratio= Market Price Per Share / Earning Price Per Share

= $63 / 9.6 = $6.6

17. Dividend PerShare of Common Stock = Dividend on common stock / common shares outstanding

= $10,500 / 21,000 = .5 % or 50%

18. Dividend Yield = Dividend Pet Share × 100 / Market Price Per Share

= .5 × 100 / $63