Question

Measures of liquidity, Solvency, and Profitability

The comparative financial statements of Marshall Inc. are as follows. The market price of Marshall common stock was $ 52 on December 31, 20Y2.

Marshall Inc.
Comparative Retained Earnings Statement
For the Years Ended December 31, 20Y2 and 20Y1
			20Y2		20Y1
Retained earnings, January 1			$3,104,450		$2,627,250
Net income			672,000		538,100
Total			$3,776,450		$3,165,350
Dividends:
	On preferred stock		$9,100		$9,100
	On common stock		51,800		51,800
		Total dividends	$60,900		$60,900
Retained earnings, December 31			$3,715,550		$3,104,450

Marshall Inc.
Comparative Income Statement
For the Years Ended December 31, 20Y2 and 20Y1
	20Y2		20Y1
Sales	$4,722,735		$4,351,250
Cost of goods sold	1,651,260		1,519,160
Gross profit	$3,071,475		$2,832,090
Selling expenses	$1,090,400		$1,310,100
Administrative expenses	928,855		769,430
Total operating expenses	$2,019,255		$2,079,530
Income from operations	$1,052,220		$752,560
Other revenue	55,380		48,040
	$1,107,600		$800,600
Other expense (interest)	344,000		189,600
Income before income tax	$763,600		$611,000
Income tax expense	91,600		72,900
Net income	$672,000		$538,100

Marshall Inc.
Comparative Balance Sheet
December 31, 20Y2 and 20Y1
			20Y2		20Y1
Assets
Current assets
	Cash		$858,480		$633,610
	Marketable securities		1,299,310		1,049,980
	Accounts receivable (net)		854,100		803,000
	Inventories		642,400		496,400
	Prepaid expenses		162,415		126,720
		Total current assets	$3,816,705		$3,109,710
Long-term investments			2,174,950		217,941
Property, plant, and equipment (net)			4,730,000		4,257,000
Total assets			$10,721,655		$7,584,651
Liabilities
Current liabilities			$1,316,105		$720,201
Long-term liabilities:
	Mortgage note payable, 8%		$1,930,000		$0
	Bonds payable, 8%		2,370,000		2,370,000
		Total long-term liabilities	$4,300,000		$2,370,000
Total liabilities			$5,616,105		$3,090,201
Stockholders' Equity
Preferred $0.70 stock, $50 par			$650,000		$650,000
Common stock, $10 par			740,000		740,000
Retained earnings			3,715,550		3,104,450
Total stockholders' equity			$5,105,550		$4,494,450
Total liabilities and stockholders' equity			$10,721,655		$7,584,651

Required:

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

17. Dividends per share of common stock	$
18. Dividend yield		%

Answer 1

1)working capital: current assets-current liabilities

=$3816705-$1316105 =$2500600

2)current ratio =current assets/current liabilities

=$3816705/$1316105 =2.9

3)Quick assets =($858480+$1299310+$854100) =$3011890

Quick ratio = Quick assets/current liabilities

=$3011890/$1316105 =$2.29

4)Average accounts receivable =($854100+$803000)/2 =$828550

Accounts receivable turnover =Net sales/Average account receivable

=$4722735/$828550 =5.7

5)Number of days sales in receivables =365/Accounts receivable turnover

=365/5.7 =64days

6)Average inventory =($642400+$496400)/2 =$569400

Inventory turnover ratio = Cost of goods sold /Average inventory

=$1651260/$569400 =2.9

7)Number of days sales inventory =365/inventory turnover ratio

=365/2.9 =125.9 days

8)Ratio of fixed assets to longterm liabilities= total fixed assets/ longterm liabilities

=$4730000/$4300000 = 1.1

9)Ratio of liabilities to shareholders equity =total liabilities / shareholders equity

=$5616105/$5105550 = 1.1

10)Time interest earned= (income before income tax + interest expense )/ interest expense

=($763600+$44000)/$44000 =18.35

11)Average total assets=($10721655+$7584651)/2 =$9153153

Asset turnover = Net sales/Average total assets

=$4722735/$9153153 =0.51

12)Return on total assets=Net income *100/Average total assets

=$672000*100/$9153153 =7.34%

13)Average stockholders equity = ($5105550+$4494450)/2=$4800000

Return on stockholders equity = Net income *100/Average stockholders equity

=$672000*100/$4800000= 14%

14)Average common stockholders equity=($740000+$3715550+$740000+$3104450)/2 = $4150000

Return on common stockholders equity = (net income -preferred dividend )*100/Average common stockholders equity

=($672000-$9100)*100/$4150000 =15.97%

15)Earning per share on common stock =(Net income -preferred dividend )/Weighted average outstanding

=($672000-$9100)*100/$74000=$8.96

16)Price -earning ratio = Market price per share/Earning price per share

=$52/8.96 =5.8

17)Dividend per share of common stock=Dividend on common stock /common shares outstanding

=$51800/74000= $0.7

18)Dividend yield ratio =Dividend per share *100/Market price per share

=$0.7*100/52 =1.35%