Question

Nineteen Measures of Solvency and Profitability

The comparative financial statements of Blige Inc. are as follows. The market price of Blige Inc. common stock was $65 on December 31, 2016.

Blige Inc.
Comparative Retained Earnings Statement
For the Years Ended December 31, 2016 and 2015
			2016		2015
Retained earnings, January 1			$4,800,300		$4,081,000
Add net income for year			1,036,000		835,900
Total			$5,836,300		$4,916,900
Deduct dividends
	On preferred stock		$14,000		$14,000
	On common stock		102,600		102,600
		Total	$116,600		$116,600
Retained earnings, December 31			$5,719,700		$4,800,300

Blige Inc.
Comparative Income Statement
For the Years Ended December 31, 2016 and 2015
	2016		2015
Sales	$6,514,445		$5,993,300
Sales returns and allowances	32,410		21,070
Sales	$6,482,035		$5,972,230
Cost of goods sold	2,105,320		1,936,890
Gross profit	$4,376,715		$4,035,340
Selling expenses	$1,562,480		$1,854,600
Administrative expenses	1,331,005		1,089,210
Total operating expenses	2,893,485		2,943,810
Income from operations	$1,483,230		$1,091,530
Other income	78,070		69,670
	$1,561,300		$1,161,200
Other expense (interest)	384,000		211,200
Income before income tax	$1,177,300		$950,000
Income tax expense	141,300		114,100
Net income	$1,036,000		$835,900

Blige Inc.
Comparative Balance Sheet
December 31, 2016 and 2015
			Dec. 31, 2016		Dec. 31, 2015
Assets
Current assets
	Cash		$864,400		$1,038,390
	Temporary investments		1,308,270		1,720,760
	Accounts receivable (net)		1,131,500		1,065,800
	Inventories		846,800		657,000
	Prepaid expenses		163,534		207,680
		Total current assets	$4,314,504		$4,689,630
Long-term investments			3,592,956		1,132,496
Property, plant, and equipment (net)			6,240,000		5,616,000
Total assets			$14,147,460		$11,438,126
Liabilities
Current liabilities			$1,487,760		$1,857,826
Long-term liabilities
	Mortgage note payable, 8%, due 2021		$2,160,000		$0
	Bonds payable, 8%, due 2017		2,640,000		2,640,000
		Total long-term liabilities	$4,800,000		$2,640,000
Total liabilities			$6,287,760		$4,497,826
Stockholders' Equity
Preferred $0.7 stock, $50 par			$1,000,000		$1,000,000
Common stock, $10 par			1,140,000		1,140,000
Retained earnings			5,719,700		4,800,300
	Total stockholders' equity		$7,859,700		$6,940,300
Total liabilities and stockholders' equity			$14,147,460		$11,438,126

Required:

Determine the following measures for 2016, 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. Working capital	$
2. Current ratio
3. Quick ratio
4. Accounts receivable turnover
5. Number of days' sales in receivables		days
6. Inventory turnover
7. Number of days' sales in inventory		days
8. Ratio of fixed assets to long-term liabilities
9. Ratio of liabilities to stockholders' equity
10. Number of times interest charges are earned
11. Number of times preferred dividends are earned
12. Ratio of sales to assets
13. Rate earned on total assets		%
14. Rate earned on stockholders' equity		%
15. Rate earned on common stockholders' equity		%
16. Earnings per share on common stock	$
17. Price-earnings ratio
18. Dividends per share of common stock	$
19. Dividend yield		%

Answer 1

Answer 1.

Working Capital = Current Assets - Current Liabilities
Working Capital = $4,314,504 - $1,487,760
Working Capital = $2,826,744

Answer 2.

Current Ratio = Current Assets / Current Liabilities
Current Ratio = $4,314,504 / $1,487,760
Current Ratio = 2.90

Answer 3.

Quick Ratio = (Current Assets - Inventories - Prepaid Expenses) / Current Liabilities
Quick Ratio = ($4,314,504 - $846,800 - $163,534) / $1,487,760
Quick Ratio = 2.22

Answer 4.

Average Accounts Receivable = ($1,131,500 + $1,065,800) / 2
Average Accounts Receivable = $1,098,650

Accounts Receivable Turnover = Net Sales / Average Accounts Receivable
Accounts Receivable Turnover = $6,482,035 / $1,098,650
Accounts Receivable Turnover = 5.90 times

Answer 5.

Number of days’ sales in receivables = 365 / Accounts Receivable Turnover
Number of days’ sales in receivables = 365 / 5.90
Number of days’ sales in receivables = 61.86 days

Answer 6.

Average Inventories = ($846,800 + $657,000) / 2
Average Inventories = $751,900

Inventory Turnover = Cost of Goods Sold / Average Inventories
Inventory Turnover = $2,105,320 / $751,900
Inventory Turnover = 2.80 times

Answer 7.

Number of days’ sales in inventory = 365 / Inventory Turnover
Number of days’ sales in inventory = 365 / 2.80
Number of days’ sales in inventory = 130.56 days