Question

1. Measures of liquidity, The ability of a company to make its periodic interest payments and repay the face amount of debt at maturity.Solvency, and The ability of a firm to generate earnings.Profitability

   The comparative financial statements of Marshall Inc. are as follows. The market price of Marshall common stock was $ 65 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			$ 2,468,925		$ 2,076,275
   Net income			554,800		425,300
   Total			$3,023,725		$ 2,501,575
   Dividends:
   	On preferred stock		$ 7,000		$ 7,000
   	On common stock		25,650		25,650
   		Total dividends	$ 32,650		$ 32,650
   Retained earnings, December 31			$ 2,991,075		$ 2,468,925

   Marshall Inc.
   Comparative Income Statement
   For the Years Ended December 31, 20Y2 and 20Y1
   	20Y2		20Y1
   Sales	$ 2,941,900		$ 2,710,540
   Cost of goods sold	1,083,320		996,650
   Gross profit	$ 1,858,580		$ 1,713,890
   Selling expenses	$ 577,590		$ 728,340
   Administrative expenses	492,020		427,750
   Total operating expenses	$1,069,610		$1,156,090
   Income from operations	$ 788,970		$ 557,800
   Other revenue	41,530		35,600
   	$ 830,500		$ 593,400
   Other expense (interest)	200,000		110,400
   Income before income tax	$ 630,500		$ 483,000
   Income tax expense	75,700		57,700
   Net income	$ 554,800		$ 425,300

   Marshall Inc.
   Comparative Balance Sheet
   December 31, 20Y2 and 20Y1
   			20Y2		20Y1
   Assets
   Current assets
   	Cash		$ 453,090		$ 593,470
   	Marketable securities		685,760		983,470
   	Accounts receivable (net)		584,000		547,500
   	Inventories		438,000		335,800
   	Prepaid expenses		85,730		118,690
   		Total current assets	$ 2,246,580		$ 2,578,930
   Long-term investments			1,813,355		786,135
   Property, plant, and equipment (net)			3,250,000		2,925,000
   Total assets			$ 7,309,935		$ 6,290,065
   Liabilities
   Current liabilities			$ 748,860		$ 1,371,140
   Long-term liabilities:
   	Mortgage note payable, 8%		$ 1,120,000		$ 0
   	Bonds payable, 8%		1,380,000		1,380,000
   		Total long-term liabilities	$ 2,500,000		$ 1,380,000
   Total liabilities			$ 3,248,860		$ 2,751,140
   Stockholders' Equity
   Preferred $0.70 stock, $50 par			$ 500,000		$ 500,000
   Common stock, $10 par			570,000		570,000
   Retained earnings			2,991,075		2,468,925
   Total stockholders' equity			$ 4,061,075		$ 3,538,925
   Total liabilities and stockholders' equity			$ 7,309,935		$ 6,290,065

   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. The excess of the current assets of a business over its current liabilities.Working capital	$
   2. A financial ratio that is computed by dividing current assets by current liabilities.Current ratio
   3. A financial ratio that measures the ability to pay current liabilities with quick assets (cash, temporary investments, accounts receivable), computed as quick assets divided by current liabilities.Quick ratio
   4. The relationship between sales and accounts receivable, computed by dividing the sales by the average net accounts receivable; measures how frequently during the year the accounts receivable are being converted to cash.Accounts receivable turnover
   5. The relationship between sales and accounts receivable, computed by dividing the average accounts receivable by the average daily sales.Number of days' sales in receivables		days
   6. The relationship between the volume of goods sold and inventory, computed by dividing the cost of goods sold by the average inventory.Inventory turnover
   7. The relationship between the volume of sales and inventory, computed by dividing average inventory by the average daily cost of goods sold.Number of days' sales in inventory		days
   8. A solvency ratio that measures how much fixed assets a company has to support its long-term debt.Ratio of fixed assets to long-term liabilities
   9. A comprehensive leverage ratio that measures the relationship of the claims of creditors to stockholders' equity, calculated as total liabilities divided by total stockholders' equity.Ratio of liabilities to stockholders' equity
   10. A ratio that measures the risk that interest payments will not be made if earnings decrease, calculated as income before income tax and interest expense divided by interest expense.Times interest earned
   11. Ratio that measures how effectively a business uses its assets to generate revenues, computed as sales divided by average total assets.Asset turnover
   12. A measure of the profitability of assets, without regard to the equity of creditors and stockholders in the assets.Return on total assets		%
   13. A measure of profitability computed by dividing net income by average total stockholders’ equity.Return on stockholders’ equity		%
   14. A measure of profitability computed by dividing net income, reduced by preferred dividend requirements, by average common stockholders' equity.Return on common stockholders’ equity		%
   15. The profitability ratio of net income available to common shareholders to the number of common shares outstanding.Earnings per share on common stock	$
   16. The ratio of the market price per share of common stock, at a specific date, to the annual earnings per share.Price-earnings ratio
   17. Measures the extent to which earnings are being distributed to common shareholders.Dividends per share of common stock	$
   18. A ratio, computed by dividing the annual dividends paid per share of common stock by the market price per share at a specific date, that indicates the rate of return to stockholders in terms of cash dividend distributions.Dividend yield

Answer 1