Question

Measures of liquidity, Solvency and Profitability

The comparative financial statements of Marshall Inc. are as follows. The market price of Marshall Inc. common stock was $ 71 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			$ 2,461,325		$ 2,069,975
Net income			570,000		424,000
Total			$ 2,966,025		$ 2,493,975
Dividends
	On preferred stock		$ 7,000		$ 7,000
	On common stock		25,650		25,650
		Total dividends	$ 32,650		$ 32,650
Retained earnings, December 31			$ 2,998,675		$ 2,461,325

Marshall Inc.
Comparative Income Statement
For the Years Ended December 31, 20Y2 and 20Y1
	20Y2		20Y1
Sales	$ 3,919,370		$ 3,611,160
Cost of goods sold	1,312,540		1,207,540
Gross profit	$ 2,606,830		$ 2,403,620
Selling expenses	$ 935,880		$ 1,140,250
Administrative expenses	797,240		669,670
Total operating expenses	1,733,120		1,809,920
Income from operations	$ 873,710		$ 593,700
Other income	45,990		37,900
	$ 919,700		$ 631,600
Other expense (interest)	272,000		149,600
Income before income tax	$ 647,700		$ 482,000
Income tax expense	77,700		58,000
Net income	$ 570,000		$ 424,000

Marshall Inc.
Comparative Balance Sheet
December 31, 20Y2 and 20Y1
			Dec. 31, 20Y2		Dec. 31, 20Y1
Assets
Current assets
	Cash		$ 750,890		$ 607,950
	Marketable securities		1,136,480		1,007,460
	Accounts receivable (net)		686,200		642,400
	Inventories		511,000		394,200
	Prepaid expenses		142,059		121,590
		Total current assets	$ 3,226,629		$ 2,773,600
Long-term investments			897,589		13,273
Property, plant, and equipment (net)			4,420,000		3,978,000
Total assets			$ 8,544,218		$ 6,764,873
Liabilities
Current liabilities			$ 1,075,543		$ 1,363,548
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			$ 4,475,543		$ 3,233,548
Stockholders' Equity
Preferred $ 0.70 stock, $ 50 par			$ 500,000		$ 500,000
Common stock, $ 10 par			570,000		570,000
Retained earnings			2,998,675		2,461,325
	Total stockholders' equity		$ 4,068,675		$ 3,531,325
Total liabilities and stockholders' equity			$ 8,544,218		$ 6,764,873

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. 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. 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

Answer of Part 1:

Working Capital = Current Assets – Current Liabilities
Working Capital = $3,226,629 - $1,075,543
Working Capital = $2,151,086

Answer of Part 2:

Current Ratio = Current Assets / Current Liabilities
Current Ratio = $3,226,629 / $1,075,543
Current Ratio = 3:1

Answer of Part 3:

Quick Ratio = (Current Ratio – Inventories – Prepaid Expenses) / Current Liabilities
Quick Ratio = ($3,226,629 - $511,000 - $142,059) / $1,075,543
Quick Ratio = 2,573,570 / 1,075,543
Quick Ratio = 2.40:1

Answer of Part 4:

Average Accounts Receivable = (Beginning Accounts Receivable + Ending Accounts Receivable) /2
Average Accounts Receivable = ($642,400 + $686,200) /2
Average Accounts Receivable = $664,300

Accounts Receivable Turnover = Sales / Average Accounts Receivable
Accounts Receivable Turnover = $3,919,370 / $664,300
Accounts Receivable Turnover = 5.9 times

Answer of Part 5:

No. of days’ sales in receivables = 365 days / Accounts Receivable Turnover
No. of Days’ sales in receivable = 365 / 5.9
no. of days sales in receivable = 62 days