Question

1. Measures of liquidity, Solvency, and Profitability

   The comparative financial statements of Marshall Inc. are as follows. The market price of Marshall common stock was $ 63 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			$2,842,700		$2,403,100
   Net income			607,200		492,200
   Total			$3,449,900		$2,895,300
   Dividends:
   	On preferred stock		$8,400		$8,400
   	On common stock		44,200		44,200
   		Total dividends	$52,600		$52,600
   Retained earnings, December 31			$3,397,300		$2,842,700

   Marshall Inc.
   Comparative Income Statement
   For the Years Ended December 31, 20Y2 and 20Y1
   	20Y2		20Y1
   Sales	$3,842,720		$3,540,510
   Cost of goods sold	1,328,600		1,222,310
   Gross profit	$2,514,120		$2,318,200
   Selling expenses	$872,330		$1,046,050
   Administrative expenses	743,090		614,340
   Total operating expenses	$1,615,420		$1,660,390
   Income from operations	$898,700		$657,810
   Other revenue	47,300		41,990
   	$946,000		$699,800
   Other expense (interest)	256,000		140,800
   Income before income tax	$690,000		$559,000
   Income tax expense	82,800		66,800
   Net income	$607,200		$492,200

   Marshall Inc.
   Comparative Balance Sheet
   December 31, 20Y2 and 20Y1
   			20Y2		20Y1
   Assets
   Current assets
   	Cash		$621,400		$541,520
   	Marketable securities		940,490		897,390
   	Accounts receivable (net)		708,100		664,300
   	Inventories		540,200		408,800
   	Prepaid expenses		117,563		108,300
   		Total current assets	$2,927,753		$2,620,310
   Long-term investments			1,799,117		26,696
   Property, plant, and equipment (net)			4,160,000		3,744,000
   Total assets			$8,886,870		$6,391,006
   Liabilities
   Current liabilities			$1,009,570		$508,306
   Long-term liabilities:
   	Mortgage note payable, 8%		$1,440,000		$0
   	Bonds payable, 8%		1,760,000		1,760,000
   		Total long-term liabilities	$3,200,000		$1,760,000
   Total liabilities			$4,209,570		$2,268,306
   Stockholders' Equity
   Preferred $0.70 stock, $50 par			$600,000		$600,000
   Common stock, $10 par			680,000		680,000
   Retained earnings			3,397,300		2,842,700
   Total stockholders' equity			$4,677,300		$4,122,700
   Total liabilities and stockholders' equity			$8,886,870		$6,391,006

   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

S.No	Formula	CALCULATION	20Y2
1)Working Capital	Current asset -current liabilities	2927753-1009570	1918183
2)Current ratio	Current asset /current liabilities	2927753/1009570	2.9
3)Quick ratio	[Current asset -Inventory -prepaid expense]/current liabilities	[2927753-540200-117563]/1009570 2269990/1009570	2.2
4) Accounts receivable turnover	Net Sales /Average accounts receivable	Average accounts receivable =[Beginning receivable+ending receivable]/2 [664300+708100]/2 686200 Accounts receivable turnover = 3842720/686200 = 5.6	5.6
5) Number of days' sales in receivables	365 / Accounts receivable turnover	365/5.6	65.2
6) Inventory turnover	Cost of goods sold / Average inventory	Average inventory =[408800+540200]/2 =474500 Inventory turnover = 1328600 /474500                    = 2.8	2.8
7) Number of days' sales in inventory	365/ Inventory turnover	365/2.8	130.4
8) Ratio of fixed assets to long-term liabilities	Fixed asset /long term liabilities	4160000/3200000	1.3
9) Ratio of liabilities to stockholders' equity	Total liabilities /total equity	4209570/4677300	.90
10) Times interest earned	Earning Before Interest and Tax /interest expense	946000/256000	3.7
11) Asset turnover	net sales /Average asset	Average asset =[6391006+8886870]/2            =7638938 Asset turnover= 3,842,720 /7638938                     = .5	.5
12) Return on total assets	Net income /Average total asset	607200/7638938	7.9%
13) Return on stockholders’ equity	Net income /Average stockholders equity	Average stockholders equity =[4122700+4677300]/2 =4400000 Return on stockholders’ equity = 607200/4400000	13.8%
14) Return on common stockholders’ equity	Net income /Average common stockholders equity	Average common stockholders equity=[3522700+4077300]/2        = 3800000 Return on common stockholders’ equity = 607200/3800000	16%
15)Earning per share	[Net income -preferred dividend ]/weighted average number of common shares outstanding	[607200-8400]/68000 598800/68000	$ 8.81 per share
16) Price-earnings ratio	Market price per share /earning per share	63/8.81	7.2
17) Dividends per share of common stock	Total dividend paid on common stock /number of common shares outstanding	44200/68000	$ .65 per share
18)Dividend yield	dividend per share /market price per share	.65/63	1%

**Number of preferred stock outstanding =600000/50 = 12000 shares

preferred dividend= 12000*.7=8400

Number of common shares outstanding = 680000/10 = 68000 shares