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 $119.70 on December 31, 20Y8.

AUTOMOTIVE SOLUTIONS INC. Comparative Income Statement For the Years Ended December 31, 20Y8 and 20Y7
	20Y8		20Y7
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	$ 1,130,000		$ 1,150,000
Income tax expense	(230,000)		(225,000)
Net income	$ 900,000		$ 925,000

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		$500,000			$500,000			$5,375,000			$500,000			$500,000			$4,545,000
Net income								900,000									925,000
Dividends:
Preferred stock								(45,000)									(45,000)
Common stock								(50,000)									(50,000)
Balances, Dec. 31		$500,000			$500,000			$6,180,000			$500,000			$500,000			$5,375,000

AUTOMOTIVE SOLUTIONS INC. Comparative Balance Sheet December 31, 20Y8 and 20Y7
	Dec. 31, 20Y8		Dec. 31, 20Y7
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		5,375,500
Total stockholders' equity	$7,180,000		$6,375,000
Total liabilities and stockholders' equity	$9,780,000		$8,755,000

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	$__2,790,000_______
2. Current ratio	___4.1_______
3. Quick ratio	____2.5______
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	____20______	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	$__8.55_______
18. Price-earnings ratio	__________
19. Dividends per share of common stock	$__0.5_______
20. Dividend yield	___________	%

Answer 1

Answer of Part 4:

Average Accounts Receivable = (Beginning Account Receivable + Ending Accounts Receivable) /2
Average Accounts Receivable = ($510,000 + $740,000) /2
Average Accounts Receivable = $625,000

Accounts Receivable Turnover = Sales / Average Accounts Receivable
Accounts Receivable Turnover = $10,000,000 / $625,000
Accounts Receivable Turnover = 16 times

Answer of Part 5:

Days Sales in Receivable = 365 days / Accounts Receivable Turnover
Days Sales in Receivable = 365 / 16
Days Sales in Receivable = 22.8 days

Answer of Part 6:

Average Inventory = (Beginning Inventory + Ending Inventory) /2
Average Inventory = ($950,000 + $1,190,000) /2
Average Inventory = $1,070,000

Inventory Turnover = Cost of Goods Sold / Average Inventory
Inventory Turnover = $5,350,000 / $1,070,000
Inventory Turnover = 5 times

Answer of Part 7:

Days Sales in Inventory = 365 days / Inventory Turnover
Days Sales in Inventory = 365 / 5
Days Sales in Inventory = 73 days

Answer of Part 8:

Debt Ratio = Total Liabilities / Total Assets
Debt Ratio = $2,600,000 / $9,780,000
Debt Ratio = 0.3