Question

The comparative financial statements of Marshall Inc. are as follows. The market price of Marshall common stock was $82.40 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	$3,712,000.00	$3,262,000.00
3	Net income	631,000.00	560,000.00
4	Total	$4,343,000.00	$3,822,000.00
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	$4,233,000.00	$3,712,000.00

Marshall Inc.

Comparative Income Statement

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

1		20Y2	20Y1
2	Sales	$10,860,000.00	$10,000,000.00
3	Cost of goods sold	6,000,000.00	5,440,000.00
4	Gross profit	$4,860,000.00	$4,560,000.00
5	Selling expenses	$2,160,000.00	$2,000,000.00
6	Administrative expenses	1,627,500.00	1,500,000.00
7	Total operating expenses	$3,787,500.00	$3,500,000.00
8	Income from operations	$1,072,500.00	$1,060,000.00
9	Other income	99,500.00	20,000.00
10		$1,172,000.00	$1,080,000.00
11	Other expense (interest)	131,000.00	120,000.00
12	Income before income tax	$1,041,000.00	$960,000.00
13	Income tax expense	410,000.00	400,000.00
14	Net income	$631,000.00	$560,000.00

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)	586,000.00	500,000.00
7	Inventories	410,000.00	380,000.00
8	Prepaid expenses	107,000.00	20,000.00
9	Total current assets	$2,454,000.00	$2,270,000.00
10	Long-term investments	800,000.00	800,000.00
11	Property, plant, and equipment (net)	5,750,000.00	5,184,000.00
12	Total assets	$9,004,000.00	$8,254,000.00
13	Liabilities
14	Current liabilities	$821,000.00	$792,000.00
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	$4,021,000.00	$3,792,000.00
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	4,233,000.00	3,712,000.00
24	Total stockholders’ equity	$4,983,000.00	$4,462,000.00
25	Total liabilities and stockholders’ equity	$9,004,000.00	$8,254,000.00

Determine the following measures for 20Y2 (round to one decimal place, including percentages, except for per-share amounts): Assume a 365-day year.

Answer 1-18

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

1.working capital

Current assets-current liabilities

2454000-821000

1633000

2.Current ratio

Current assets/current liabilities

2454000/821000

2.99

3.Quick ratio

(total current assets-inventory)/Total current liabilities

(2454000-410000)/821000

2.49

4.Accounts receivable turnover

Net credit sales/average trade receivables

10860000*2/(586000+500000)

20

5.Number of days’ sales in receivables.

Accounts receivable* no of days/Credut sales

586000*365/10860000

19.70

6.Inventory turnover

Cost of goods sold/Average Inventory

6000000*2/(410000+380000)

15.19

7.Number of days’ sales in inventory

Inventory*365/Cost of sales

410000*365/6000000

24.94

8.Ratio of fixed assets to long-term liabilities

Fixed assets/long term liabilities

(5750000+800000)/3200000

2.05

9.Ratio of liabilities to stockholders’ equity

Liabilities/stockholders equity

9004000/4983000

1.81

10.Times interest earned

EBIT/Interest expense

1172000/131000

8.95

11.Asset turnover

Cost of sales/Assets

6000000/9004000

0.67

12.Return on total assets

Net income/total assets

631000/9004000

0.07

13.Return on stockholders’ equity

Net Income/Total shareholders equity

631000/4983000

0.13

14.Return on common stockholders’ equity.

Net Income/Total common shareholders equity

631000/500000

1.26

15.Earnings per share on common stock

Net profit available for common stock/No of Equity shares

(4343000-10000)/(500000/5)

43.33

16.Price-earnings ratio

Share price/Earnings per share

82.4/43.33

1.90

17.Dividends per share of common stock

Dividend amount/No of equity shares

100000/(500000/5)

1

18.Dividend yield

Annual dividend/Current stock price

1/82.4

0.01