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			$1,942,500		$1,643,000
Net income			432,000		336,500
Total			$2,374,500		$1,979,500
Dividends:
	On preferred stock		$14,000		$14,000
	On common stock		23,000		23,000
		Total dividends	$37,000		$37,000
Retained earnings, December 31			$2,337,500		$1,942,500

Marshall Inc.
Comparative Income Statement
For the Years Ended December 31, 20Y2 and 20Y1
	20Y2		20Y1
Sales	$2,514,850		$2,317,030
Cost of goods sold	963,600		886,510
Gross profit	$1,551,250		$1,430,520
Selling expenses	$495,560		$617,680
Administrative expenses	422,140		362,770
Total operating expenses	$917,700		$980,450
Income from operations	$633,550		$450,070
Other revenue	33,350		28,730
	$666,900		$478,800
Other expense (interest)	176,000		96,800
Income before income tax	$490,900		$382,000
Income tax expense	58,900		45,500
Net income	$432,000		$336,500

Marshall Inc.
Comparative Balance Sheet
December 31, 20Y2 and 20Y1
			20Y2		20Y1
Assets
Current assets
	Cash		$411,210		$414,360
	Marketable securities		622,370		686,650
	Accounts receivable (net)		489,100		459,900
	Inventories		365,000		277,400
	Prepaid expenses		77,795		82,870
		Total current assets	$1,965,475		$1,921,180
Long-term investments			1,469,775		388,632
Property, plant, and equipment (net)			2,640,000		2,376,000
Total assets			$6,075,250		$4,685,812
Liabilities
Current liabilities			$677,750		$673,312
Long-term liabilities:
	Mortgage note payable, 8%		$990,000		$0
	Bonds payable, 8%		1,210,000		1,210,000
		Total long-term liabilities	$2,200,000		$1,210,000
Total liabilities			$2,877,750		$1,883,312
Stockholders' Equity
Preferred $0.70 stock, $20 par			$400,000		$400,000
Common stock, $10 par			460,000		460,000
Retained earnings			2,337,500		1,942,500
Total stockholders' equity			$3,197,500		$2,802,500
Total liabilities and stockholders' equity			$6,075,250		$4,685,812

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-1:

Working capital = Current assets - Current liabilities

                         = $1,965,475 - $677,750 = $1,287,725

Answer-2:

Current ratio = Current assets / Current liabilities = $1,965,475 / $677,750 = 2.90

Answer-3

Quick ratio = (Current assets - Inventories) / Current liabilities

                  = ($1,965,475 - $365,000) / $677,750 = 2.36

Answer-4

Account receivable turnover = Sales / Avg. account receivable

                                             =$2,514,850 / $474,500 = 5.30 times

Answer-5:

Number of days' sales in receivables = 365 / Account receivable turnover

                                                           = 365 / 5.30 = 69 days (approx)

Answer-6:

Inventory turnover = Cost of goods sold / average inventory

                              = $963,600 / $321,200 = 3 times

Answer-7:

Number of days' sales in inventory = 365 / Inventory turnover

                                                           = 365 / 3 = 122 days (approx)

Answer-8:

Ratio of fixed assets to long-term liabilities = Fixed assets / long term liabilities

                                                                    = $2,640,000 / $2,200,000 = 1.2

Answer-9:

Ratio of liabilities to stockholders' equity = Liabilities / stockholder's equity

                                                                = $2,877,750 / $3,197,500 = 0.9

Answer-10:

Times interest earned = Earnings before interest and taxes / interest

                                   = $666,900 / $176,000 = 3.79 times

Answer-11:

Asset turnover = Sales / average total assets

                         = $2,514,850 / $5,380,531 = 0.47 times

Answer-12:

Return on total assets = Net income / total assets

                                   = $432,000 / $6,075,250 * 100

                                   = 7.11%