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 $82.60 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	$3,704,000	$3,264,000
Net income	$ 600,000	$ 550,000
Dividends:
On preferred stock	(10,000)	(10,000)
On common stock	(100,000)	(100,000)
Increase in retained earnings	$ 490,000	$ 440,000
Retained earnings, December 31	$4,194,000	$3,704,000

  

Marshall Inc.
Comparative Income Statement
For the Years Ended December 31, 20Y2 and 20Y1
	20Y2	20Y1
Sales	$ 10,850,000	$10,000,000
Cost of goods sold	(6,000,000)	(5,450,000)
Gross profit	$ 4,850,000	$ 4,550,000
Selling expenses	$ (2,170,000)	$ (2,000,000)
Administrative expenses	(1,627,500)	(1,500,000)
Total operating expenses	$(3,797,500)	$ (3,500,000)
Operating income	$ 1,052,500	$ 1,050,000
Other revenue and expense:
Other revenue	99,500	20,000
Other expense (interest)	(132,000)	(120,000)
Income before income tax expense	$ 1,020,000	$ 950,000
Income tax expense	(420,000)	(400,000)
Net income	$ 600,000	$ 550,000

  

  

Marshall Inc.
Comparative Balance Sheet
December 31, 20Y2 and 20Y1
	20Y2	20Y1
Assets
Current assets:
Cash	$1,050,000	$ 950,000
Marketable securities	301,000	420,000
Accounts receivable (net)	585,000	500,000
Inventories	420,000	380,000
Prepaid expenses	108,000	20,000
Total current assets	$ 2,464,000	$2,270,000
Long-term investments	800,000	800,000
Property, plant, and equipment (net)	5,760,000	5,184,000
Total assets	$ 9,024,000	$8,254,000
Liabilities
Current liabilities	$ 880,000	$ 800,000
Long-term liabilities:
Mortgage note payable, 6%	$ 200,000	$ 0
Bonds payable, 4%	3,000,000	3,000,000
Total long-term liabilities	$ 3,200,000	$3,000,000
Total liabilities	$ 4,080,000	$3,800,000
Stockholders’ Equity
Preferred 4% stock, $5 par	$ 250,000	$ 250,000
Common stock, $5 par	500,000	500,000
Retained earnings	4,194,000	3,704,000
Total stockholders’ equity	$ 4,944,000	$4,454,000
Total liabilities and stockholders’ equity	$ 9,024,000	$8,254,000

Determine the following measures for 20Y2. Round to one decimal place, including percentages, except for per-share amounts, which should be rounded to the nearest cent.

1. Working Capital	$
2. Current ratio
3. Quick ratio
4. Accounts receivable turnover
5. Number of days’ sales in receivables
6. Inventory turnover
7. Number of days’ sales in inventory
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)	$2,464,000
	Total Current Liabilities (B)	$880,000
	Working Capital (Total Current Assets - Total Current Liabilities)	$1,584,000
2)	Current Ratio
	Total Current Assets	$2,464,000
	Total Current Liabilities	$880,000
	Current Ratio (Current Assets / Current Liabilities)	2.8
		Times
3)	Quick Ratio
	Quick Assets
	Total Current Assets	$2,464,000
	Less: Inventory	-$420,000
	Less: Prepaid Expenses	-$108,000
	Quick Assets	$1,936,000
	Current Liabilities	$880,000
	Acid Test Ratio (Quick Assets / Current Liabilities)	2.2
		Times
4)	Accounts Receivable Turnover
	Net Credit Sales (A)	$10,850,000
	Avg Accounts Receivable ((585,000+500,000)/2) (B)	$542,500
	Accounts Receivable Turnover (A/B)	20.0
		Times

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