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 $ 59 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			$ 1,569,900		$ 1,328,700
Net income			331,200		272,200
Total			$1,901,100		$ 1,600,900
Dividends:
	On preferred stock		$ 11,200		$ 11,200
	On common stock		19,800		19,800
		Total dividends	$ 31,000		$ 31,000
Retained earnings, December 31			$ 1,870,100		$ 1,569,900

Marshall Inc.
Comparative Income Statement
For the Years Ended December 31, 20Y2 and 20Y1
	20Y2		20Y1
Sales	$ 2,030,130		$ 1,870,500
Cost of goods sold	766,500		705,180
Gross profit	$ 1,263,630		$ 1,165,320
Selling expenses	$ 419,500		$ 506,630
Administrative expenses	357,350		297,540
Total operating expenses	776,850		804,170
Income from operations	$ 486,780		$ 361,150
Other revenue	25,620		23,050
	$ 512,400		$ 384,200
Other expense (interest)	136,000		75,200
Income before income tax	$ 376,400		$ 309,000
Income tax expense	45,200		36,800
Net income	$ 331,200		$ 272,200

Marshall Inc.
Comparative Balance Sheet
December 31, 20Y2 and 20Y1
			Dec. 31, 20Y2		Dec. 31, 20Y1
Assets
Current assets
	Cash		$ 387,340		$ 297,510
	Marketable securities		586,240		493,030
	Accounts receivable (net)		386,900		365,000
	Inventories		292,000		219,000
	Prepaid expenses		73,281		59,500
		Total current assets	$ 1,725,761		$ 1,434,040
Long-term investments			1,079,429		227,627
Property, plant, and equipment (net)			2,040,000		1,836,000
Total assets			$ 4,845,190		$ 3,497,667
Liabilities
Current liabilities			$ 595,090		$ 307,767
Long-term liabilities
	Mortgage note payable, 8 %		$ 760,000		$ 0
	Bonds payable, 8 %		940,000		940,000
		Total long-term liabilities	$ 1,700,000		$ 940,000
Total liabilities			$ 2,295,090		$ 1,247,767
Stockholders' Equity
Preferred $ 0.70 stock, $ 20 par			$ 320,000		$ 320,000
Common stock, $ 10 par			360,000		360,000
Retained earnings			1,870,100		1,569,900
Total stockholders' equity			$ 2,550,100		$ 2,249,900
Total liabilities and stockholders' equity			$ 4,845,190		$ 3,497,667

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

1. Working capital

= Curret Assets - Current Liabilities = Working capital

= 1,725,761 - 595,090 = 1,130,671

2. Current Ratio

= Current Assets / Current Liabilities = Current Ratio

= 1,725,761 / 595,090 = 2.9

3. Quick ratio

= Quick assets / Current Liabilities

= (Cash+A/c Receivables+Marketable Securities) / Current Liabilities

= 1,360,480 / 595,090

= 2.286

4. Accounts receivable turnover ratio

= Net Sales / Average Accounts Receivables = Accounts Turnover Ratio

= 2,030,130 / (365,000+386,900/2) [Beg Receivables+ End Receivables / 2]

= 2,030,130 / 375,950 = 5.4

5. Number of days' sales in receivables

= (Average accounts receivables / Sales) x 365 days = Number of days' sales in receivables

= (375,950 / 2,030,130) x 365 = 67.59 days

6. Inventory Turnover

= Cost of Goods Sold / Average Inventory = Inventory Turnover Ratio

= 766,500 / (292,000+219,000/2) [Beg Inventory+ End Inventory/ 2]

= 766,500 / 255,500 = 3

7. Number of days' sales in inventory

= (Average Inventory / Cost of Goods Sold) x 365 days = Number of days' sales in inventory

= (255,500 / 766,500) x 365 = 121.66 days

8. Ratio of fixed assets to long term liabilities

= Fixed assets / Long term liabilities = Ratio of fixed assets to long term liabilities

= (Long-term investments + PPE) / Long-term liabilities = Ratio of fixed assets to long term liabilities

= (1,079,429 + 2,040,000) / 1,700,000 = 1.83

9. Ratio of liabilities to stockholder's equity

= Total liabilities / Stockholder's equity = Ratio of liabilties to stockholder's equity

= 2,295,090 / 2,550,100 = 0.9

10. Times interest earned

= Income from operations (EBIT) / Interest Expense = Times interest earned

= 486,780 / 136,000 = 3.57 times

11. Asset Turnover

= Sales / Average total assets = Asset turnover

= 2,030,130 / (3,497,667+4,845,190 / 2)

= 2,030,130 / 4,171,428.5 = 0.48

12. Return on total assets

= Income from operations (EBIT) / Total assets = Return on total assets

= 486,780 / 4,845,190 = 0.1

13. Return on stockholder's equity

= Net Income / Stockholder's equity = Return on stockholder's equity

= 331,200 / 2,550,100 = 0.129

14. Return on common stockholder's equity

= (Net income - Preferred dividend) / Common stockholder's equity = Return on common stockholder's equity

=(331,200 - 11,200) / 360,000

= 320,000 / 360,000 = 0.88