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 $ 51 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			$ 1,669,675		$ 1,421,825
Net income			364,000		291,200
Total			$2,033,675		$ 1,713,025
Dividends:
	On preferred stock		$ 12,600		$ 12,600
	On common stock		30,750		30,750
		Total dividends	$ 43,350		$ 43,350
Retained earnings, December 31			$ 1,990,325		$ 1,669,675

Marshall Inc.
Comparative Income Statement
For the Years Ended December 31, 20Y2 and 20Y1
	20Y2		20Y1
Sales	$ 2,261,175		$ 2,083,350
Cost of goods sold	792,050		728,690
Gross profit	$ 1,469,125		$ 1,354,660
Selling expenses	$ 511,380		$ 612,880
Administrative expenses	435,625		359,950
Total operating expenses	947,005		972,830
Income from operations	$ 522,120		$ 381,830
Other revenue	27,480		24,370
	$ 549,600		$ 406,200
Other expense (interest)	136,000		75,200
Income before income tax	$ 413,600		$ 331,000
Income tax expense	49,600		39,800
Net income	$ 364,000		$ 291,200

Marshall Inc.
Comparative Balance Sheet
December 31, 20Y2 and 20Y1
			Dec. 31, 20Y2		Dec. 31, 20Y1
Assets
Current assets
	Cash		$ 385,500		$ 349,970
	Marketable securities		583,460		579,940
	Accounts receivable (net)		394,200		372,300
	Inventories		292,000		219,000
	Prepaid expenses		72,924		69,990
		Total current assets	$ 1,728,084		$ 1,591,200
Long-term investments			1,370,501		606,773
Property, plant, and equipment (net)			1,870,000		1,683,000
Total assets			$ 4,968,585		$ 3,880,973
Liabilities
Current liabilities			$ 508,260		$ 501,298
Long-term liabilities
	Mortgage note payable, 8 %		$ 760,000		$ 0
	Bonds payable, 8 %		940,000		940,000
		Total long-term liabilities	$ 1,700,000		$ 940,000
Total liabilities			$ 2,208,260		$ 1,441,298
Stockholders' Equity
Preferred $ 0.70 stock, $ 20 par			$ 360,000		$ 360,000
Common stock, $ 10 par			410,000		410,000
Retained earnings			1,990,325		1,669,675
Total stockholders' equity			$ 2,760,325		$ 2,439,675
Total liabilities and stockholders' equity			$ 4,968,585		$ 3,880,973

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 to Part 1.

Working Capital = Current Assets – Current Liabilities
Working Capital = $1,728,084 - $508,260
Working Capital = $1,219,824

Answer to Part 2.

Current Ratio = Current Assets /Current Liabilities
Current Ratio = 1,728,084 / 508,260
Current Ratio = 3.4: 1

Answer to Part 3.

Quick Ratio = (Current Assets – Inventories) /Current Liabilities
Quick Ratio = (1,728,084 – 292,000) / 508,260
Quick Ratio = 1,436,084 / 508,260
Quick Ratio = 2.8: 1

Answer to Part 4.

Accounts Receivable Turnover = Net Sales / Average Accounts Receivable
Average Accounts Receivable = (394,200 + 372,300) / 2
Average Accounts Receivable = $383,250

Accounts Receivable Turnover = 2,261,175 / 383,250
Accounts Receivable Turnover = 5.9 times

Answer to Part 5.

Number of days’ sales in Receivable = 365 / Accounts Receivable Turnover Ratio
Number of days’ sales in Receivable = 365 / 5.9
Number of days’ sales in Receivable = 61.86 or 62 days