Question

8. Measures of liquidity, Solvency, and Profitability

   The comparative financial statements of Marshall Inc. are as follows. The market price of Marshall common stock was $ 57 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			$ 782,100		$ 661,300
   Net income			170,400		135,400
   Total			$952,500		$ 796,700
   Dividends:
   	On preferred stock		$ 5,600		$ 5,600
   	On common stock		9,000		9,000
   		Total dividends	$ 14,600		$ 14,600
   Retained earnings, December 31			$ 937,900		$ 782,100

   Marshall Inc.
   Comparative Income Statement
   For the Years Ended December 31, 20Y2 and 20Y1
   	20Y2		20Y1
   Sales	$ 1,024,920		$ 944,270
   Cost of goods sold	407,340		374,750
   Gross profit	$ 617,580		$ 569,520
   Selling expenses	$ 197,240		$ 243,910
   Administrative expenses	168,020		143,250
   Total operating expenses	$365,260		$387,160
   Income from operations	$ 252,320		$ 182,360
   Other revenue	13,280		11,640
   	$ 265,600		$ 194,000
   Other expense (interest)	72,000		40,000
   Income before income tax	$ 193,600		$ 154,000
   Income tax expense	23,200		18,600
   Net income	$ 170,400		$ 135,400

   Marshall Inc.
   Comparative Balance Sheet
   December 31, 20Y2 and 20Y1
   			20Y2		20Y1
   Assets
   Current assets
   	Cash		$ 169,180		$ 179,270
   	Marketable securities		256,060		297,080
   	Accounts receivable (net)		197,100		182,500
   	Inventories		146,000		116,800
   	Prepaid expenses		32,012		35,850
   		Total current assets	$ 800,352		$ 811,500
   Long-term investments			547,658		195,763
   Property, plant, and equipment (net)			1,080,000		972,000
   Total assets			$ 2,428,010		$ 1,979,263
   Liabilities
   Current liabilities			$ 250,110		$ 357,163
   Long-term liabilities:
   	Mortgage note payable, 8%		$ 400,000		$ 0
   	Bonds payable, 8%		500,000		500,000
   		Total long-term liabilities	$ 900,000		$ 500,000
   Total liabilities			$ 1,150,110		$ 857,163
   Stockholders' Equity
   Preferred $0.70 stock, $20 par			$ 160,000		$ 160,000
   Common stock, $10 par			180,000		180,000
   Retained earnings			937,900		782,100
   Total stockholders' equity			$ 1,277,900		$ 1,122,100
   Total liabilities and stockholders' equity			$ 2,428,010		$ 1,979,263

   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		%

2 more Check My Work uses remaining.

Answer 1

Following table gives all the calculations and following the screenshot there are a few explanations:

Explanatory Points:

1. Average receivables = (197100+182500)/2 =189800
2. Average receivables = (146000+116800)/2 = 131400
3. Fixed assets comprises of only property plant and equipment and long term investments do not fall in the category of fixed assets as per convention
4. Average total assets = (2428010+1979263)/2 =2203637
5. Preference shares dividend is given in the income statement as $5600, which can also be calculated as, BV of preferred shares/par value * dividend per share = 160000/20*0.70=5600
6. As common stock has par value of $10 and book value of $180000, therefore number of common stock = 180000/10 = 18000
7. Price of common stock is given in the question
8. Retained earnings are a part of common stock equity as per convention