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 $ 61 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			$ 2,434,625		$ 2,069,875
Net income			570,000		424,000
Total			$ 3,004,625		$ 2,493,875
Dividends
	On preferred stock		$ 9,100		$ 9,100
	On common stock		50,150		50,150
		Total dividends	$ 59,250		$ 59,250
Retained earnings, December 31			$ 2,945,375		$ 2,434,625

Marshall Inc.
Comparative Income Statement
For the Years Ended December 31, 20Y2 and 20Y1
	20Y2		20Y1
Sales	$ 3,281,350		$ 3,023,230
Cost of goods sold	1,199,390		1,103,440
Gross profit	$ 2,081,960		$ 1,919,790
Selling expenses	$ 689,390		$ 858,650
Administrative expenses	587,260		504,280
Total operating expenses	1,276,650		1,362,930
Income from operations	$ 805,310		$ 556,860
Other income	42,390		35,540
	$ 847,700		$ 592,400
Other expense (interest)	200,000		110,400
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		$ 448,030		$ 581,850
	Marketable securities		678,100		964,210
	Accounts receivable (net)		584,000		547,500
	Inventories		438,000		335,800
	Prepaid expenses		84,770		116,370
		Total current assets	$ 2,232,900		$ 2,545,730
Long-term investments			1,816,775		738,367
Property, plant, and equipment (net)			3,250,000		2,925,000
Total assets			$ 7,299,675		$ 6,209,097
Liabilities
Current liabilities			$ 744,300		$ 1,284,472
Long-term liabilities
	Mortgage note payable, 8 %		$ 1,120,000		$ 0
	Bonds payable, 8 %		1,380,000		1,380,000
		Total long-term liabilities	$ 2,500,000		$ 1,380,000
Total liabilities			$ 3,244,300		$ 2,664,472
Stockholders' Equity
Preferred $ 0.70 stock, $ 40 par			$ 520,000		$ 520,000
Common stock, $ 10 par			590,000		590,000
Retained earnings			2,945,375		2,434,625
	Total stockholders' equity		$ 4,055,375		$ 3,544,625
Total liabilities and stockholders' equity			$ 7,299,675		$ 6,209,097

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

b

Answer of Part 1:

Working Capital = Current Assets – Current Liabilities
Working Capital = $2,232,900 -$744,300
Working Capital = $1,488,600

Answer of Part 2:

Current Ratio = Current Assets / Current Liabilities
Current Ratio = $2,232,900 / $744,300
Current Ratio = 3:1

Answer of Part 3:

Quick Ratio = (Current Assets – Inventories – Prepaid Expenses) / Current Liabilities
Quick Ratio= ($2,232,900 - $438,000 - $84,770) / $744,300
Quick Ratio = $1,710,130 / $744,300
Quick Ratio = 2.3

Answer of Part 4:

Average Accounts Receivable= (Beginning Accounts Receivable + Ending Accounts Receivable) / 2
Average Accounts Receivable = ($547,500 + $584,000) / 2
Average Accounts Receivable = $565,750

Accounts Receivable Turnover = Sales / Average Accounts Receivable
Accounts Receivable Turnover = $3,281,350 / $565,750
Accounts Receivable Turnover = 5.8 times

Answer of Part 5:

Number of Days Sales in Receivable= 365 days / Accounts Receivable Turnover
Number of Days Sales In Receivable = 365 / 5.8
Number of Days Sales in Receivable= 62.9 days