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 $ 66 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			$2,469,400		$2,083,800
Net income			562,400		426,800
Total			$3,031,800		$2,510,600
Dividends:
	On preferred stock		$7,000		$7,000
	On common stock		34,200		34,200
		Total dividends	$41,200		$41,200
Retained earnings, December 31			$2,990,600		$2,469,400

Marshall Inc.
Comparative Income Statement
For the Years Ended December 31, 20Y2 and 20Y1
	20Y2		20Y1
Sales	$3,372,600		$3,107,340
Cost of goods sold	1,165,080		1,071,870
Gross profit	$2,207,520		$2,035,470
Selling expenses	$749,290		$922,170
Administrative expenses	638,290		541,590
Total operating expenses	$1,387,580		$1,463,760
Income from operations	$819,940		$571,710
Other revenue	43,160		36,490
	$863,100		$608,200
Other expense (interest)	224,000		123,200
Income before income tax	$639,100		$485,000
Income tax expense	76,700		58,200
Net income	$562,400		$426,800

Marshall Inc.
Comparative Balance Sheet
December 31, 20Y2 and 20Y1
			20Y2		20Y1
Assets
Current assets
	Cash		$609,330		$540,520
	Marketable securities		922,220		895,730
	Accounts receivable (net)		620,500		584,000
	Inventories		467,200		365,000
	Prepaid expenses		115,278		108,100
		Total current assets	$2,734,528		$2,493,350
Long-term investments			1,340,612		312,001
Property, plant, and equipment (net)			3,640,000		3,276,000
Total assets			$7,715,140		$6,081,351
Liabilities
Current liabilities			$854,540		$1,001,951
Long-term liabilities:
	Mortgage note payable, 8%		$1,260,000		$0
	Bonds payable, 8%		1,540,000		1,540,000
		Total long-term liabilities	$2,800,000		$1,540,000
Total liabilities			$3,654,540		$2,541,951
Stockholders' Equity
Preferred $0.70 stock, $50 par			$500,000		$500,000
Common stock, $10 par			570,000		570,000
Retained earnings			2,990,600		2,469,400
Total stockholders' equity			$4,060,600		$3,539,400
Total liabilities and stockholders' equity			$7,715,140		$6,081,351

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

Solution:

1)	Working Capital	20Y2
	Total Current Assets (A)	$2,734,528
	Total Current Liabilities (B)	$854,540
	Working Capital (Total Current Assets - Total Current Liabilities)	$1,879,988
2)	Current Ratio
	Total Current Assets	$2,734,528
	Total Current Liabilities	$854,540
	Current Ratio (Current Assets / Current Liabilities)	3.2
		Times
3)	Quick Ratio
	Quick Assets
	Total Current Assets	$2,734,528
	Less: Inventory	-$467,200
	Less: Prepaid Expenses	-$115,278
	Quick Assets	$2,152,050
	Current Liabilities	$854,540
	Acid Test Ratio (Quick Assets / Current Liabilities)	2.5
		Times
4)	Accounts Receivable Turnover
	Net Credit Sales (A)	$3,372,600
	Avg Accounts Receivable ((620,500 + 584,000)/2) (B)	$602,250
	Accounts Receivable Turnover (A/B)	5.6
		Times

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