Question

The comparative financial statements of Marshall Inc. are as follows. The market price of Marshall common stock was $82.40 on December 31, 20Y2.

Marshall Inc.

Comparative Retained Earnings Statement

For the Years Ended December 31, 20Y2 and 20Y1

1		20Y2	20Y1
2	Retained earnings, January 1	$3,712,000.00	$3,262,000.00
3	Net income	631,000.00	560,000.00
4	Total	$4,343,000.00	$3,822,000.00
5	Dividends:
6	On preferred stock	$10,000.00	$10,000.00
7	On common stock	100,000.00	100,000.00
8	Total dividends	$110,000.00	$110,000.00
9	Retained earnings, December 31	$4,233,000.00	$3,712,000.00

Marshall Inc.

Comparative Income Statement

For the Years Ended December 31, 20Y2 and 20Y1

1		20Y2	20Y1
2	Sales	$10,860,000.00	$10,000,000.00
3	Cost of goods sold	6,000,000.00	5,440,000.00
4	Gross profit	$4,860,000.00	$4,560,000.00
5	Selling expenses	$2,160,000.00	$2,000,000.00
6	Administrative expenses	1,627,500.00	1,500,000.00
7	Total operating expenses	$3,787,500.00	$3,500,000.00
8	Income from operations	$1,072,500.00	$1,060,000.00
9	Other income	99,500.00	20,000.00
10		$1,172,000.00	$1,080,000.00
11	Other expense (interest)	131,000.00	120,000.00
12	Income before income tax	$1,041,000.00	$960,000.00
13	Income tax expense	410,000.00	400,000.00
14	Net income	$631,000.00	$560,000.00

Marshall Inc.

Comparative Balance Sheet

December 31, 20Y2 and 20Y1

1		20Y2	20Y1
2	Assets
3	Current assets:
4	Cash	$1,050,000.00	$950,000.00
5	Marketable securities	301,000.00	420,000.00
6	Accounts receivable (net)	586,000.00	500,000.00
7	Inventories	410,000.00	380,000.00
8	Prepaid expenses	107,000.00	20,000.00
9	Total current assets	$2,454,000.00	$2,270,000.00
10	Long-term investments	800,000.00	800,000.00
11	Property, plant, and equipment (net)	5,750,000.00	5,184,000.00
12	Total assets	$9,004,000.00	$8,254,000.00
13	Liabilities
14	Current liabilities	$821,000.00	$792,000.00
15	Long-term liabilities:
16	Mortgage note payable, 6%,	$200,000.00	$0.00
17	Bonds payable, 4%,	3,000,000.00	3,000,000.00
18	Total long-term liabilities	$3,200,000.00	$3,000,000.00
19	Total liabilities	$4,021,000.00	$3,792,000.00
20	Stockholders’ Equity
21	Preferred 4% stock, $5 par	$250,000.00	$250,000.00
22	Common stock, $5 par	500,000.00	500,000.00
23	Retained earnings	4,233,000.00	3,712,000.00
24	Total stockholders’ equity	$4,983,000.00	$4,462,000.00
25	Total liabilities and stockholders’ equity	$9,004,000.00	$8,254,000.00

Determine the following measures for 20Y2 (round to one decimal place, including percentages, except for per-share amounts): Assume a 365-day year.

Answer 1-18

1.	working capital
2.	Current ratio
3.	Quick ratio
4.	Accounts receivable turnover
5.	Number of days’ sales in receivables.
6.	Inventory turnover
7.	Number of days’ sales in inventory
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

1. Working capital = current assets (-) current liabilities = 2454000 - 821000 = 1633000

2. Current ratio = current assets / current liabilities = 2454000 / 821000 = 2.99 = 3.0

3. Quick ratio = [current assets - inventories] / current liabilities = [2454000 - 410000] / 821000 = 2.5

4. Accounts receivable turnover = net credit sales / average AR = 10860000 / [(586000+500000)/2] = 20

5. Number of days' sales in receivables=accounts receivables / [total sales / number of days in a year] = 586000 / [10860000/365] = 19.7

6. Inventory turnover ratio = cost of goods sold / average inventory = 6000000 / [(410000+380000)/2] = 15.2

7. Number of days' sales in inventory = no. of days in a year / inventory turnover ratio = 365 / 15.2 = 24

8. Ratio of fixed assets to long term liabilities = total fixed assets / total long term liabilities = 5750000 / 3200000 = 1.8

9. Ratio of liabilities to stockholders equity (total liability approach) = total liability / total stockholders equity = 4021000 / 4983000 = 0.8

10. Times interest earned = EBIT / interest expense = 1172000 / 131000 = 8.9

11. Asset turnover = net sales / average total assets = 10860000 / [(9004000+8254000)/2] = 1.3

12. Return of total assets = net profit after tax / average total assets x 100 = 631000 / [(9004000+8254000)/2] x 100 = 7.3%

13. Return on stockholders equity = net profit after tax / average total shareholders equity x 100 = 631000 / [(4983000+4462000)/2] x 100 = 13.4%

14. Return on common stock holders equity =(net profit after tax - preference dividend) / average common stockholders equity x 100 = (631000-10000) / [(4733000+4212000)/2)] x 100 = 13.9%

15. Earning per share on common stock = net profit available to equity share holders / number of common stock outstanding = (631000-10000) / 500000 = 1.2

16. Price earning ratio = market price per share / earnings per share = 82.4 / 1.2 = 68.7

17. Dividend per share of common stock = divident paid to common stockholders / number of common stock outstanding = 100000 / 500000 = 0.2

18. Dividend yield = dividends per share / market value per share x 100 = (100000/500000) / 82.4 x 100 = 0.24%