Question

The comparative financial statements of Marshall Inc. are as follows. The market price of Marshall common stock was $82.40 on December 31, 20Y2.

Marshall Inc.

Comparative Retained Earnings Statement

For the Years Ended December 31, 20Y2 and 20Y1

1		20Y2	20Y1
2	Retained earnings, January 1	$3,712,000.00	$3,262,000.00
3	Net income	630,000.00	560,000.00
4	Total	$4,342,000.00	$3,822,000.00
5	Dividends:
6	On preferred stock	$10,000.00	$10,000.00
7	On common stock	100,000.00	100,000.00
8	Total dividends	$110,000.00	$110,000.00
9	Retained earnings, December 31	$4,232,000.00	$3,712,000.00

Marshall Inc.

Comparative Income Statement

For the Years Ended December 31, 20Y2 and 20Y1

1		20Y2	20Y1
2	Sales	$10,860,000.00	$10,000,000.00
3	Cost of goods sold	6,000,000.00	5,440,000.00
4	Gross profit	$4,860,000.00	$4,560,000.00
5	Selling expenses	$2,160,000.00	$2,000,000.00
6	Administrative expenses	1,627,500.00	1,500,000.00
7	Total operating expenses	$3,787,500.00	$3,500,000.00
8	Income from operations	$1,072,500.00	$1,060,000.00
9	Other revenue	99,500.00	20,000.00
10		$1,172,000.00	$1,080,000.00
11	Other expense (interest)	132,000.00	120,000.00
12	Income before income tax	$1,040,000.00	$960,000.00
13	Income tax expense	410,000.00	400,000.00
14	Net income	$630,000.00	$560,000.00

Marshall Inc.

Comparative Balance Sheet

December 31, 20Y2 and 20Y1

1		20Y2	20Y1
2	Assets
3	Current assets:
4	Cash	$1,050,000.00	$950,000.00
5	Marketable securities	301,000.00	420,000.00
6	Accounts receivable (net)	584,000.00	500,000.00
7	Inventories	430,000.00	380,000.00
8	Prepaid expenses	107,000.00	20,000.00
9	Total current assets	$2,472,000.00	$2,270,000.00
10	Long-term investments	800,000.00	800,000.00
11	Property, plant, and equipment (net)	5,750,000.00	5,184,000.00
12	Total assets	$9,022,000.00	$8,254,000.00
13	Liabilities
14	Current liabilities	$840,000.00	$792,000.00
15	Long-term liabilities:
16	Mortgage note payable, 6%,	$200,000.00	$0.00
17	Bonds payable, 4%,	3,000,000.00	3,000,000.00
18	Total long-term liabilities	$3,200,000.00	$3,000,000.00
19	Total liabilities	$4,040,000.00	$3,792,000.00
20	Stockholders’ Equity
21	Preferred 4% stock, $5 par	$250,000.00	$250,000.00
22	Common stock, $5 par	500,000.00	500,000.00
23	Retained earnings	4,232,000.00	3,712,000.00
24	Total stockholders’ equity	$4,982,000.00	$4,462,000.00
25	Total liabilities and stockholders’ equity	$9,022,000.00	$8,254,000.00

Determine the following measures for 20Y2 (round to one decimal place, including percentages, except for per-share amounts): Assume a 365-day year.

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

working capital	current assets - current liabilities
	20Y2 ($)
total current assets	2472000
total current liabilities	840000
working capital	1632000
current ratio	current assets / current liabilities
	20Y2 ($)
total current assets	2472000
total current liabilities	840000
current ratio	2.9
quick ratio	quick assets / current liabilities
	20Y2 ($)
Cash	1050000
Marketable securities	301000
Accounts receivable (net)	584000
total quick assets	1935000
total current liabilities	840000
quick ratio	2.3
accounts receivable turnover	sales / average accounts receivables
	20Y2 ($)
sales	10860000
opening accounts receivable	500000
ending accounts receivable	584000
average accounts receivable	542000
accounts receivable turnover	0.9
Number of days’ sales in receivables	365 days / accounts receivable turnover
	20Y2 ($)
accounts receivable turnover	0.9
Number of days’ sales in receivables	405.6
inventory turnover	cost of goods sold / average inventories
	20Y2 ($)
cost of goods sold	6000000
opening inventory	380000
closing inventory	430000
average inventories	405000
inventory turnover	14.8
Number of days’ sales in inventory	365 days / inventory turnover
	20Y2 ($)
inventory turnover	14.8
Number of days’ sales in inventory	24.7
Ratio of fixed assets to long-term liabilities	total fixed assets / total long-term liabilities * 100
	20Y2 ($)
total fixed assets	5750000
total long-term liabilities	3200000
Ratio of fixed assets to long-term liabilities	179.7%
Ratio of liabilities to stockholders’ equity	total liabilities / stockholders equity
	20Y2 ($)
total liabilities	4040000
stockholders equity	4982000
Ratio of liabilities to stockholders’ equity	0.8
Times interest earned	EBIT / interest expenses
	20Y2 ($)
operating income	1172000
interest expenses	132000
Times interest earned	8.9
Asset turnover	sales / average total assets
	20Y2 ($)
sales	10860000
opening total assets	8254000
closing total assets	9022000
average total assets	8638000
Asset turnover	1.3
Return on total assets	EBIT / average total assets
	20Y2 ($)
operating income	1172000
opening total assets	8254000
closing total assets	9022000
average total assets	8638000
Return on total assets	0.1
Return on stockholders’ equity	net income / average stockholders equity
	20Y2 ($)
net income	630000
opening stockholders equity	4462000
closing stockholders equity	4982000
average stockholders equity	4722000
Return on stockholders’ equity	0.1
Return on common stockholders’ equity	net income - preferred dividends / average common stockholders equity
	20Y2 ($)
net income	630000
preferred stock	10000
opening common stockholders equity	4212000
closing common stockhkolders equity	4732000
average common stockholders equity	4472000
Return on common stockholders’ equity	0.1
Earnings per share on common stock	(net income - preferred dividends)/no.of shares outstanding
	20Y2 ($)
net income	630000
preferred stock	10000
shares outstanding	100000
Earnings per share on common stock	6.2
Price-earnings ratio	market value per share / earnings per share
	20Y2 ($)
market value per share	82.4
Earnings per share on common stock	6.2
Price-earnings ratio	13.3
Dividends per share of common stock	dividends on common stock / shares of common stock outstanding
	20Y2 ($)
dividends on common stock	100000
shares outstanding	100000
Dividends per share of common stock	1
Dividend yield	Dividends per share of common stock / current share price
	20Y2 ($)
Dividends per share of common stock	1
current share price	82.4
Dividend yield	0.012