Question

PR 17-04

Measures of liquidity, Solvency, and Profitability

The comparative financial statements of Marshall Inc. are as follows. The market price of Marshall common stock was $ 67 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			$2,815,650		$2,379,550
Net income			660,000		487,400
Total			$3,475,650		$2,866,950
Dividends:
	On preferred stock		$10,500		$10,500
	On common stock		40,800		40,800
		Total dividends	$51,300		$51,300
Retained earnings, December 31			$3,424,350		$2,815,650

Marshall Inc.
Comparative Income Statement
For the Years Ended December 31, 20Y2 and 20Y1
	20Y2		20Y1
Sales	$3,416,400		$3,147,700
Cost of goods sold	1,357,800		1,249,180
Gross profit	$2,058,600		$1,898,520
Selling expenses	$607,880		$792,190
Administrative expenses	517,820		465,250
Total operating expenses	$1,125,700		$1,257,440
Income from operations	$932,900		$641,080
Other revenue	49,100		40,920
	$982,000		$682,000
Other expense (interest)	232,000		128,000
Income before income tax	$750,000		$554,000
Income tax expense	90,000		66,600
Net income	$660,000		$487,400

Marshall Inc.
Comparative Balance Sheet
December 31, 20Y2 and 20Y1
			20Y2		20Y1
Assets
Current assets
	Cash		$486,250		$751,920
	Marketable securities		735,950		1,246,040
	Accounts receivable (net)		678,900		635,100
	Inventories		511,000		394,200
	Prepaid expenses		91,992		150,380
		Total current assets	$2,504,092		$3,177,640
Long-term investments			2,773,738		1,701,712
Property, plant, and equipment (net)			3,190,000		2,871,000
Total assets			$8,467,830		$7,750,352
Liabilities
Current liabilities			$863,480		$2,054,702
Long-term liabilities:
	Mortgage note payable, 8%		$1,300,000		$0
	Bonds payable, 8%		1,600,000		1,600,000
		Total long-term liabilities	$2,900,000		$1,600,000
Total liabilities			$3,763,480		$3,654,702
Stockholders' Equity
Preferred $0.70 stock, $40 par			$600,000		$600,000
Common stock, $10 par			680,000		680,000
Retained earnings			3,424,350		2,815,650
Total stockholders' equity			$4,704,350		$4,095,650
Total liabilities and stockholders' equity			$8,467,830		$7,750,352

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 = Current assets - Current Liabilities = 2,504,092 - 863,480 =1,640,612
2. Current Ratio = Current assets/Current liabilities = 2,504,092/863,480 = 2.9
3. Quick Ratio = Quick assets - Current Liabilities = (2,504,092-91,992-511,000)/863,480 = 2.2
4. Accounts Recievable turnover = Credit sales/Average accounts receivables = 3,416,400/[(678,900+635,100)/2] = 5.2