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 $68 on December 31, 20Y8.

AUTOMOTIVE SOLUTIONS INC. Comparative Income Statement For the Years Ended December 31, 20Y8 and 20Y7
	20Y8		20Y7
Sales	$6,456,850		$5,949,020
Cost of goods sold	(2,277,600)		(2,095,390)
Gross profit	$4,179,250		$3,853,630
Selling expenses	$(1,478,160)		$(1,794,610)
Administrative expenses	(1,259,180)		(1,053,970)
Total operating expenses	(2,737,340)		(2,848,580)
Operating income	$1,441,910		$1,005,050
Other revenue and expense:
Other income	75,890		64,150
Other expense (interest)	(456,000)		(251,200)
Income before income tax	$1,061,800		$818,000
Income tax expense	(127,400)		(98,500)
Net income	$934,400		$719,500

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		$850,000			$970,000			$4,152,700			$850,000			$970,000			$3,513,000
Net income								934,400									719,500
Dividends:
Preferred stock								(11,900)									(11,900)
Common stock								(67,900)									(67,900)
Balances, Dec. 31		$850,000			$970,000			$5,007,300			$850,000			$970,000			$4,152,700

AUTOMOTIVE SOLUTIONS INC. Comparative Balance Sheet December 31, 20Y8 and 20Y7
	Dec. 31, 20Y8		Dec. 31, 20Y7
Assets
Current assets:
Cash	$1,400,300		$962,180
Temporary investments	2,119,370		1,594,470
Accounts receivable (net)	1,146,100		1,080,400
Inventories	861,400		657,000
Prepaid expenses	264,926		192,440
Total current assets	$5,792,096		$4,486,490
Long-term investments	1,135,234		-212,820
Property, plant, and equipment (net)	7,410,000		6,669,000
Total assets	$14,337,330		$10,942,670
Liabilities
Current liabilities	$1,810,030		$1,829,970
Long-term liabilities:
Mortgage note payable, 8%, due in 15 years	$2,560,000		$0
Bonds payable, 8%, due in 20 years	3,140,000		3,140,000
Total long-term liabilities	$5,700,000		$3,140,000
Total liabilities	$7,510,030		$4,969,970
Stockholders' Equity
Preferred $0.70 stock, $50 par	$850,000		$850,000
Common stock, $10 par	970,000		970,000
Retained earnings	5,007,300		4,152,700
Total stockholders' equity	$6,827,300		$5,972,700
Total liabilities and stockholders' equity	$14,337,330		$10,942,670

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

Answer 1.

Working Capital = Current Assets - Current Liabilities
Working Capital = $5,792,096 - $1,810,030
Working Capital = $3,982,066

Answer 2.

Current Ratio = Current Assets / Current Liabilities
Current Ratio = $5,792,096 / $1,810,030
Current Ratio = 3.2

Answer 3.

Quick Ratio = (Current Assets - Inventories - Prepaid Expenses) / Current Liabilities
Quick Ratio = ($5,792,096 - $861,400 - $264,926) / $1,810,030
Quick Ratio = 2.6 to 1

Answer 4.

Average Accounts Receivable = ($1,146,100 + $1,080,400) / 2
Average Accounts Receivable = $1,113,250

Accounts Receivable Turnover = Sales / Average Accounts Receivable
Accounts Receivable Turnover = $6,456,850 / $1,113,250
Accounts Receivable Turnover = 5.80

Answer 5.

Days’ Sales in Receivables = 365 / Accounts Receivables Turnover
Days’ Sales in Receivables = 365 / 5.80
Days’ Sales in Receivables = 62.9 days

Answer 6.

Average Inventory = ($861,400 + $657,000) / 2
Average Inventory = $759,200

Inventory Turnover = Cost of Goods Sold / Average Inventory
Inventory Turnover = $2,277,600 / $759,200
Inventory Turnover = 3.0 times

Answer 7.

Days’ Sales in Inventory = 365 / Inventories Turnover
Days’ Sales in Inventory = 365 / 3.0
Days’ Sales in Inventory = 121.7 days