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 $ 55 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			$1,651,550		$1,389,650
Net income			379,600		284,600
Total			$2,031,150		$1,674,250
Dividends:
	On preferred stock		$6,300		$6,300
	On common stock		16,400		16,400
		Total dividends	$22,700		$22,700
Retained earnings, December 31			$2,008,450		$1,651,550

Marshall Inc.
Comparative Income Statement
For the Years Ended December 31, 20Y2 and 20Y1
	20Y2		20Y1
Sales	$2,148,025		$1,979,120
Cost of goods sold	756,280		695,780
Gross profit	$1,391,745		$1,283,340
Selling expenses	$460,470		$572,690
Administrative expenses	392,245		336,340
Total operating expenses	$852,715		$909,030
Income from operations	$539,030		$374,310
Other revenue	28,370		23,890
	$567,400		$398,200
Other expense (interest)	136,000		75,200
Income before income tax	$431,400		$323,000
Income tax expense	51,800		38,400
Net income	$379,600		$284,600

Marshall Inc.
Comparative Balance Sheet
December 31, 20Y2 and 20Y1
			20Y2		20Y1
Assets
Current assets
	Cash		$298,920		$388,930
	Marketable securities		452,430		644,510
	Accounts receivable (net)		401,500		379,600
	Inventories		306,600		233,600
	Prepaid expenses		56,554		77,790
		Total current assets	$1,516,004		$1,724,430
Long-term investments			1,445,206		645,503
Property, plant, and equipment (net)			2,040,000		1,836,000
Total assets			$5,001,210		$4,205,933
Liabilities
Current liabilities			$522,760		$844,383
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			$2,222,760		$1,784,383
Stockholders' Equity
Preferred $0.70 stock, $40 par			$360,000		$360,000
Common stock, $10 par			410,000		410,000
Retained earnings			2,008,450		1,651,550
Total stockholders' equity			$2,778,450		$2,421,550
Total liabilities and stockholders' equity			$5,001,210		$4,205,933

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

working capital	current assets – current liabilities
	20Y2
total current assets	1516004
total current liabilities	522760
working capital	993244
current ratio	current assets / current liabilities
	20Y2
total current assets	1516004
total current liabilities	522760
current ratio	2.9
quick ratio	(cash + marketable securities + accounts receivable) / current liabilities
	20Y2
cash	298920
marketable securities	452430
accounts receivable	401500
total quick assets	1152850
total current liabilities	522760
quick ratio	2.2
accounts receivable turnover	Sales / average accounts receivable
	20Y2
sales	2148025
opening accounts receivable	379600
closing accounts receivable	401500
average accounts receivable	390550
accounts receivable turnover	5.5
days' sales in receivables	365 days / accounts receivable turnover
	20Y2
accounts receivable turnover	5.5
days' sales in receivables	66.4
Inventory turnover	cost of goods sold / average inventory
	20Y2
cost of goods sold	756280
opening inventory	233600
closing inventory	306600
average inventory	270100
Inventory turnover	2.8
days' sales in inventory	365 days / inventory turnover
	20Y2
Inventory turnover	2.8
days' sales in inventory	130.4
fixed assets to long-term liabilities	fixed assets / long term liabilities
	20Y2
fixed assets	2040000
Long-term liabilities	1700000
fixed assets to long-term liabilities	1.2
liabilities to stockholders' equity	total liabilities / total equity
	20Y2
total liabilities	2222760
total equity	2778450
liabilities to stockholders' equity	0.8
Times interest earned	EBIT / interest expenses
	20Y2
EBIT	567400
interest expenses	136000
Times interest earned	4.2
Asset turnover	Sales / average total assets
	20Y2
sales	2148025
opening total assets	4205933
closing total assets	5001210
average total assets	4603571.5
Asset turnover	0.5
Return on total assets	net income / average total assets
	20Y2
net income	379600
opening total assets	4205933
closing total assets	5001210
average total assets	4603571.5
Return on total assets	8.2%
Return on stockholders’ equity	net income / average stockholders equity
	20Y2
net income	379600
opening stockholders equity	2421550
closing stockholders equity	2778450
average stockholders equity	2600000
Return on stockholders’ equity	14.6%
Return on common stockholders’ equity	(net income – preferred dividends) / average common stockholders equity
	20Y2
net income	379600
preferred dividend	6300
common stock	410000
retained earnings	1651550
common stock	410000
retained earnings	2008450
average common stockholders equity	1120000
Return on common stockholders’ equity	33.3%
Earnings per share on common stock	(net income – preferred dividend) / common shares outstanding
	20Y2
net income	379600
preferred dividend	6300
Common shares outstanding	41000
Earnings per share on common stock	9.1
Price-earnings ratio	market price / EPS
	20Y2
market price	55
EPS	9.1
Price-earnings ratio	6.0
Dividends per share of common stock	common stock dividend / outstanding common shares
	20Y2
common stock dividend	16400
Common shares outstanding	41000
Dividends per share of common stock	0.4
Dividend yield	dividends per share / market price
	20Y2
Dividends per share of common stock	0.4
market price	55
Dividend yield	0.7%