Question

Nineteen Measures of Solvency and Profitability The comparative financial statements of Blige Inc. are as follows. The market price of Blige Inc. common stock was $60 on December 31, 2016. Blige Inc. Comparative Retained Earnings Statement For the Years Ended December 31, 2016 and 2015 2016 2015 Retained earnings, January 1 $2,832,200 $2,391,600 Add net income for year 624,800 489,800 Total $3,457,000 $2,881,400 Deduct dividends On preferred stock $8,400 $8,400 On common stock 40,800 40,800 Total $49,200 $49,200 Retained earnings, December 31 $3,407,800 $2,832,200 Blige Inc. Comparative Income Statement For the Years Ended December 31, 2016 and 2015 2016 2015 Sales $4,390,900 $4,039,600 Sales returns and allowances 21,850 14,200 Sales $4,369,050 $4,025,400 Cost of goods sold 1,606,730 1,478,190 Gross profit $2,762,320 $2,547,210 Selling expenses $967,370 $1,173,030 Administrative expenses 824,050 688,920 Total operating expenses 1,791,420 1,861,950 Income from operations $970,900 $685,260 Other income 51,100 43,740 $1,022,000 $729,000 Other expense (interest) 312,000 172,000 Income before income tax $710,000 $557,000 Income tax expense 85,200 67,200 Net income $624,800 $489,800 Blige Inc. Comparative Balance Sheet December 31, 2016 and 2015 Dec. 31, 2016 Dec. 31, 2015 Assets Current assets Cash $933,510 $612,510 Temporary investments 1,412,880 1,015,010 Accounts receivable (net) 788,400 744,600 Inventories 584,000 452,600 Prepaid expenses 176,608 122,500 Total current assets $3,895,398 $2,947,220 Long-term investments 1,268,982 29,127 Property, plant, and equipment (net) 4,680,000 4,212,000 Total assets $9,844,380 $7,188,347 Liabilities Current liabilities $1,256,580 $926,147 Long-term liabilities Mortgage note payable, 8%, due 2021 $1,750,000 $0 Bonds payable, 8%, due 2017 2,150,000 2,150,000 Total long-term liabilities $3,900,000 $2,150,000 Total liabilities $5,156,580 $3,076,147 Stockholders' Equity Preferred $0.7 stock, $50 par $600,000 $600,000 Common stock, $10 par 680,000 680,000 Retained earnings 3,407,800 2,832,200 Total stockholders' equity $4,687,800 $4,112,200 Total liabilities and stockholders' equity $9,844,380 $7,188,347 Required: Determine the following measures for 2016, 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.

Required:

Determine the following measures for 2016, 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. Number of times interest charges are earned
11. Number of times preferred dividends are earned
12. Ratio of sales to assets
13. Rate earned on total assets		%
14. Rate earned on stockholders' equity		%
15. Rate earned on common stockholders' equity		%
16. Earnings per share on common stock	$
17. Price-earnings ratio
18. Dividends per share of common stock	$
19. Dividend yield		%

Feedback

1. Subtract current liabilities from current assets.

2. Divide current assets by current liabilities.

3. Divide quick assets by current liabilities. Quick assets are cash, temporary investments, and receivables.

4. Divide sales by average accounts receivable. Average Accounts receivable = (Beginning Net Accounts Receivable + Ending Net Accounts Receivable) ÷ 2.

5. Divide average accounts receivable by average daily sales. Average Accounts receivable = (Beginning Net Accounts Receivable + Ending Net Accounts Receivable) ÷ 2. Average daily sales are sales divided by 365 days.

6. Divide cost of goods sold by average inventory. Average Inventory = (Beginning Inventories + Ending Inventories) ÷ 2.

7. Divide average inventory by average daily cost of goods sold. Average Inventory = (Beginning Inventories + Ending Inventories) ÷ 2. Average daily cost of goods sold are cost of goods sold divided by 365 days.

8. Divide property, plant and equipment (net) by long-term liabilities.

9. Divide total liabilities by total stockholders' equity.

10. Divide the sum of income before income tax plus interest expense by interest expense.

11. Divide net income by preferred dividends from the retained earnings statement.

12. Divide sales by average total assets, excluding long-term investments. Average total assets = (Beginning total assets + Ending total assets) ÷ 2.

13. Divide the sum of net income plus interest expense by average total assets. Average total assets = (Beginning total assets + Ending total assets) ÷ 2.

14. Divide net income by average total stockholders' equity. Average total stockholders' equity = (Beginning total stockholders' equity + Ending total stockholders' equity) ÷ 2.

15. Divide net income minus preferred dividends from the retained earnings statement by average common stockholders' equity. Common stockholders' equity = Common stock + Retained earnings. Average common stockholders' equity = (Beginning common stockholders' equity + Ending common stockholders' equity) ÷ 2.

16. Divide net income minus preferred dividends from the retained earnings statement by common shares outstanding (common stock ÷ par value).

17. Divide common market share price by common earnings per share (use answer from requirement 16).

18. Divide common dividends (from Retained Earnings Statement) by common shares outstanding (common stock ÷ par value).

19. Divide common dividends per share (use answer from requirement 18) by market share price.

Learning Objective 2, Learning Objective 3.

Answer 1

Blige Inc
			Formula	Calculation	Answer
1	Working Capital		=Current Asset-Current Liabilities	=3895398-1256580	26,38,818.00
2	Current Ratio		=Current Asset/Current Liabilities	=3895398/1256580	3.10
3	Quick Ratio		=Quick Asset/Current Liabilities	=(3895398-584000-176608)/1256580	2.49
		Note : Quick asset=Current asset-Invntory-Prepaid expenses
4	Accounts Receivable Turnover		=Total Net sales/Average Accounts Receivable	=4369050/((788400+744600)/2)	5.70
		Note : Instead of average accounts receivable, one can take ending accounts receivable
5	No. of days' sales in receivable		=360/Accounts Receivable turnover	=360/5.7	63.15	Days
6	Inventory turnover		=Cost of goods sold/Average Inventory	=1606730/((584000+452600)/2)	3.10
7	No. of days' sales in inventory		=360/Inventory turnvoer	=360/3.1	116.12	Days
8	Ratio of Fixed Asset to Long term Liabilities		=Fixed Asset/Long term Liabilities	=4680000/3900000	1.20
9	Ratio of Liabilties to stockholder's equity		=Liabilities/Stockholder's equity	=5156580/4687800	1.10
10	No. of times Interest charges are earned		=Earning Before Interest & Taxes/Interest expense	=(710000+312000)/312000	3.28