Question

Measures of liquidity, Solvency and Profitability

The comparative financial statements of Stargel Inc. are as follows. The market price of Stargel common stock was $119.70 on December 31, 20Y2.

Stargel Inc.
Comparative Retained Earnings Statement
For the Years Ended December 31, 20Y2 and 20Y1
			20Y2		20Y1
Retained earnings, January 1			$5,375,000		$4,545,000
Net income			$900,000		$925,000
Dividends:
	On preferred stock		(45,000)		(45,000)
	On common stock		(50,000)		(50,000)
Increase in retained earnings			$805,000		$830,000
Retained earnings, December 31			$6,180,000		$5,375,000

Stargel Inc.
Comparative Income Statement
For the Years Ended December 31, 20Y2 and 20Y1
	20Y2		20Y1
Sales	$10,000,000		$9,400,000
Cost of goods sold	(5,350,000)		(4,950,000)
Gross profit	$4,650,000		$4,450,000
Selling expenses	$(2,000,000)		$(1,880,000)
Administrative expenses	(1,500,000)		(1,410,000)
Total operating expenses	$(3,500,000)		$(3,290,000)
Operating income	$1,150,000		$1,160,000
Other revenue and expense:
Other revenue	150,000		140,000
Other expense (interest)	(170,000)		(150,000)
Income before income tax expense	$1,130,000		$1,150,000
Income tax expense	(230,000)		(225,000)
Net income	$900,000		$925,000

Stargel Inc.
Comparative Balance Sheet
December 31, 20Y2 and 20Y1
			20Y2		20Y1
Assets
Current assets:
	Cash		$500,000		$400,000
	Marketable securities		1,010,000		1,000,000
	Accounts receivable (net)		740,000		510,000
	Inventories		1,190,000		950,000
	Prepaid expenses		250,000		229,000
		Total current assets	$3,690,000		$3,089,000
Long-term investments			2,350,000		2,300,000
Property, plant, and equipment (net)			3,740,000		3,366,000
Total assets			$9,780,000		$8,755,000
Liabilities
Current liabilities			$900,000		$880,000
Long-term liabilities:
	Mortgage note payable, 10%		$200,000		$0
	Bonds payable, 10%		1,500,000		1,500,000
		Total long-term liabilities	$1,700,000		$1,500,000
Total liabilities			$2,600,000		$2,380,000
Stockholders' Equity
Preferred $0.90 stock, $10 par			$500,000		$500,000
Common stock, $5 par			500,000		500,000
Retained earnings			6,180,000		5,375,000
	Total stockholders' equity		$7,180,000		$6,375,000
Total liabilities and stockholders' equity			$9,780,000		$8,755,000

Required:

Determine the following measures for 20Y2, rounding to one decimal place, except 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

			Current Assets	-	Current Liabilities	=	Calculated Value
1.	Working capital:		$3,690,000		$900,000		$2,790,000
	Ratio		Numerator	÷	Denominator	=	Calculated Value
2.	Current ratio		$    3,690,000		$       900,000		4.1
3.	Quick ratio		$    2,250,000		$       900,000		2.5
4.	Accounts receivable
	turnover		$ 10,000,000		$       625,000		16.0
5.	Number of days'
	sales in receivables		$       625,000		$         27,397		22.8
6.	Inventory turnover		$    5,350,000		$    1,070,000		5.0
7.	Number of days'
	sales in inventory		$    1,070,000		$         14,658		73.0
8.	Ratio of fixed assets to
	long-term liabilities		$    3,740,000		$    1,700,000		2.2
9.	Ratio of liabilities to
	stockholders' equity		$    2,600,000		$    7,180,000		0.4
10.	Times interest earned		$    1,300,000		$       170,000		7.6
11.	Asset turnover		$ 10,000,000		$    9,267,500		1.1
12.	Return on total assets		$    1,070,000		$    9,267,500		11.5%
13.	Return on stockholders'
	equity		$       900,000		$    6,777,500		13.3%
14.	Return on common
	stockholders' equity		$       855,000		$    6,277,500		13.6%
15.	Earnings per share
	on common stock		$       855,000		100,000		$8.55
16.	Price-earnings ratio		$         119.70		$             8.55		14.0
17.	Dividends per share
	of common stock		$         50,000		100,000		$0.50
18.	Dividend yield		$             0.50		$         119.70		0.4%