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 $ 60 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			$2,467,500		$2,091,700
Net income			577,600		428,400
Total			$3,045,100		$2,520,100
Dividends:
	On preferred stock		$7,000		$7,000
	On common stock		45,600		45,600
		Total dividends	$52,600		$52,600
Retained earnings, December 31			$2,992,500		$2,467,500

Marshall Inc.
Comparative Income Statement
For the Years Ended December 31, 20Y2 and 20Y1
	20Y2		20Y1
Sales	$3,482,100		$3,208,180
Cost of goods sold	1,357,800		1,249,180
Gross profit	$2,124,300		$1,959,000
Selling expenses	$670,850		$857,180
Administrative expenses	571,470		503,420
Total operating expenses	$1,242,320		$1,360,600
Income from operations	$881,980		$598,400
Other revenue	46,420		38,200
	$928,400		$636,600
Other expense (interest)	272,000		149,600
Income before income tax	$656,400		$487,000
Income tax expense	78,800		58,600
Net income	$577,600		$428,400

Marshall Inc.
Comparative Balance Sheet
December 31, 20Y2 and 20Y1
			20Y2		20Y1
Assets
Current assets
	Cash		$825,140		$554,420
	Marketable securities		1,248,860		918,750
	Accounts receivable (net)		678,900		635,100
	Inventories		511,000		394,200
	Prepaid expenses		156,100		110,880
		Total current assets	$3,420,000		$2,613,350
Long-term investments			1,031,250		88,663
Property, plant, and equipment (net)			4,080,000		3,672,000
Total assets			$8,531,250		$6,374,013
Liabilities
Current liabilities			$1,068,750		$966,513
Long-term liabilities:
	Mortgage note payable, 8%		$1,530,000		$0
	Bonds payable, 8%		1,870,000		1,870,000
		Total long-term liabilities	$3,400,000		$1,870,000
Total liabilities			$4,468,750		$2,836,513
Stockholders' Equity
Preferred $0.70 stock, $50 par			$500,000		$500,000
Common stock, $10 par			570,000		570,000
Retained earnings			2,992,500		2,467,500
Total stockholders' equity			$4,062,500		$3,537,500
Total liabilities and stockholders' equity			$8,531,250		$6,374,013

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.

1. Ratio of fixed assets to long-term liabilities
2. Ratio of liabilities to stockholders' equity
3. Times interest earned
4. Asset turnover
5. Return on total assets		%
6. Return on stockholders’ equity		%
7. Return on common stockholders’ equity		%
8. Earnings per share on common stock	$
9. Price-earnings ratio
10. Dividends per share of common stock	$
11. Dividend yield		%

Answer 1

Answer to Part 1.
Ratio of Fixed Assets to Long Term Liabilities = Fixed Assets / Long Term Liabilities
Ratio of Fixed Assets to Long Term Liabilities = $4,080,000 / $3,400,000
Ratio of Fixed Assets to Long Term Liabilities = 1.2 times

Answer to Part 2.
Ratio of Liabilities to Stockholders’ Equity = Total Liabilities / Total Stockholders’ Equity
Ratio of Liabilities to Stockholders’ Equity = $4,468,750 / $4,062,500
Ratio of Liabilities to Stockholders’ Equity = 1.1 times

Answer to Part 3.
Times Interest Earned = (Income before Income Tax + Interest Expense)/ Interest Expense
Times Interest Earned = ($656,400 + $272,000) / $272,000
Times Interest Earned = $928,400 / $272,000
Times Interest Earned = 3.4 times

Answer to Part 4.
Asset Turnover = Sales/ Average Total Assets

Average Total Assets = ($8,531,250 + $6,374,013) / 2
Average Total Assets = $7,452,631.50

Asset Turnover = $3,482,100 / $7,452,631.50
Asset Turnover = 0.5 times

Answer to Part 5.
Return on Total Assets = (Net Income + Interest Expense) / Average Total Assets * 100
Return on Total Assets = ($577,600 + $272,000) / $7,452,631.50 * 100
Return on Total Assets = 11.4%

Answer to Part 6.
Return on Stockholders’ Equity = Net Income / Average Stockholders’ Equity * 100

Average Stockholders’ Equity = ($4,062,500 + $3,537,500) / 2
Average Stockholders’ Equity = $3,800,000

Return on Stockholders’ Equity = $577,600 / $3,800,000 * 100
Return on Stockholders’ Equity = 15.2%