Question

The comparative financial statements of Marshall Inc. are as follows. The market price of Marshall common stock was $82.80 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	$3,692,000.00	$3,262,000.00
3	Net income	610,000.00	540,000.00
4	Total	$4,302,000.00	$3,802,000.00
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	$4,192,000.00	$3,692,000.00

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	5,460,000.00
4	Gross profit	$4,860,000.00	$4,540,000.00
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	$1,040,000.00
9	Other revenue	99,500.00	20,000.00
10		$1,172,000.00	$1,060,000.00
11	Other expense (interest)	132,000.00	120,000.00
12	Income before income tax	$1,040,000.00	$940,000.00
13	Income tax expense	430,000.00	400,000.00
14	Net income	$610,000.00	$540,000.00

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)	584,000.00	500,000.00
7	Inventories	430,000.00	380,000.00
8	Prepaid expenses	109,000.00	20,000.00
9	Total current assets	$2,474,000.00	$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	$9,024,000.00	$8,254,000.00
13	Liabilities
14	Current liabilities	$882,000.00	$812,000.00
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	$4,082,000.00	$3,812,000.00
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	4,192,000.00	3,692,000.00
24	Total stockholders’ equity	$4,942,000.00	$4,442,000.00
25	Total liabilities and stockholders’ equity	$9,024,000.00	$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.

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

No.	Ratio	Formula
1	Working capital	Total current assets - Current liabilities
2	Current ratio	Total current assets / Current liabilities
3	Quick ratio	(Cash + Marketable securities + Accounts receivable) / Current liabilities
4	Accounts receivable turnover	Sales / Average accounts receivable
5	Number of days’ sales in receivables	365 / Accounts receivable turnover
6	Inventory turnover	Cost of goods sold / Average inventory
7	Number of days’ sales in inventory	365 / Inventory turnover
8	Ratio of fixed assets to long-term liabilities	Property, plant, and equipment / Total long-term liabilities
9	Ratio of liabilities to stockholders’ equity	Total liabilities / Total stockholders' equity
10	Times interest earned	Income from operations / Interest expense
11	Asset turnover	Sales / Average total assets
12	Return on total assets	Net income / Average total assets
13	Return on stockholders’ equity	Net income / Average stockholders' equity
14	Return on common stockholders’ equity	(Net income - preferred dividends) / Average common stockholders' equity
15	Earnings per share on common stock	(Net income - preferred dividends) / Number of common shares outstanding
16	Price-earnings ratio	Market price per common share / Earnings per common share
17	Dividends per share of common stock	Dividends on common stock / Number of common shares outstanding
18	Dividend yield	Dividends per common share / Market price per common share

No.	Ratio	Calculation
1	Working capital	=2474000-882000
2	Current ratio	=2474000/882000
3	Quick ratio	=(1050000+301000+584000)/882000
4	Accounts receivable turnover	=10860000/((584000+500000)/2)
5	Number of days’ sales in receivables	=365/20
6	Inventory turnover	=6000000/((430000+380000)/2)
7	Number of days’ sales in inventory	=365/14.8
8	Ratio of fixed assets to long-term liabilities	=5750000/3200000
9	Ratio of liabilities to stockholders’ equity	=4082000/4942000
10	Times interest earned	=1072500/132000
11	Asset turnover	=10860000/((9024000+8254000)/2)
12	Return on total assets	=610000/((9024000+8254000)/2)
13	Return on stockholders’ equity	=610000/((4942000+4442000)/2)
14	Return on common stockholders’ equity	=(610000-10000)/(((500000+4192000)+(500000+3692000))/2)
15	Earnings per share on common stock	=(610000-10000)/100000
16	Price-earnings ratio	=82.8/6
17	Dividends per share of common stock	=100000/100000
18	Dividend yield	=1/82.8

No.	Ratio	Answer
1	Working capital	1592000	$
2	Current ratio	2.8	times
3	Quick ratio	2.2	times
4	Accounts receivable turnover	20.0	times
5	Number of days’ sales in receivables	18.3	days
6	Inventory turnover	14.8	times
7	Number of days’ sales in inventory	24.7	days
8	Ratio of fixed assets to long-term liabilities	1.8	times
9	Ratio of liabilities to stockholders’ equity	0.8	times
10	Times interest earned	8.1	times
11	Asset turnover	1.3	times
12	Return on total assets	7.1%
13	Return on stockholders’ equity	13.0%
14	Return on common stockholders’ equity	13.5%
15	Earnings per share on common stock	6.0	$
16	Price-earnings ratio	13.8	times
17	Dividends per share of common stock	1.0	$
18	Dividend yield	1.2%