Question

Measures of liquidity, Solvency and Profitability The comparative financial statements of Marshall Inc. are as follows. The market price of Marshall Inc. common stock was $ 52 on December 31, 20Y2. Marshall Inc. Comparative Retained Earnings Statement For the Years Ended December 31, 2012 and 2011 2042 2041 Retained earnings, January 1 $1,422,150 $1,214,450 Net Income 316.800 249.000 Total $ 1,739,950 $ 1,463,250 Dividends On preferred stock $ 10,500 $ 10,500 On common stock 30.600 30.600 Total dividends $ 41,100 $ 41,100 Retained earnings, December 31 $ 1,697,850 $ 1,422,150 Marshall Inc. Comparative Income Statement For the Years Ended December 31, 2012 and 2011 2012 2011 Sales $ 1,941,800 $ 1,789,090 Cost of goods sold 200,800 644.740 Gross profit $ 1,241,000 $1,144,350 Selling expenses $ 419,800 $ 511,650 Administrative expenses 357,600 300,500 Total operating expenses 777,400 812.150 Income from operations $ 463,600 $ 332,200 Other income 24,400 21,200 $ 488,000 $353,400 Other expense (Interest) 128,000 70,400 Income before income tax $360,000 $283,000 Income tax expense 43,200 34,200 Net income $ 316,800 $ 248,800

Answer 1

1. Woking Capital =Current Assets - Current Liabilities =$1,512,195 - $504,065 $ 1,008,130 2. Current Ratio =Current Assets / Current Liabilities =$1,512,195 / $504,065 3.0 times 3. Quick Ratio =(Current Assets - Inventory) / Current Liablities =($1,512,195 - $262,800 / $504,065 2.4 times 12 4. Accounts Receivable turnover =Net Sales / Average Accounts Receivable =$1,941,800 / (($357,700+$335,800)/2) 5.6 times 5. Number of day's sales in receivables =365days / Accounts Receivable turnover =365 days/5.6 65.1 days 6. Inventory turnover =Cost of Goods Sold / Average Inventory =$700,800 / (($262,800+$204,400)/2) 3.0 times 7. Number of day's sales in inventory =365days / Inventory turnover =365days/3 121.6 days 28

28 29 8. Ratio of fixed assets to long term liabilities =Fixed Assets / Long term liabilities =$1,760,000 / $1,600,000 1.1 30 31 32 33 34 35 36 =Liabilities / Stockholder's Equity 9. Ratio of liabilities to stockholder's equity =$2,104,065 / $2,337,850 0.9 10. Times interest earned =Income before Interest and Tax / Interest Expense =$463,600 / $128,000 3.6 11. Asset turnover =Net Sales / Average Assets =$1,941,800 / (($4,441,915+$3,430,651)/2) 0.4 12. Return on total assets =Net Income / Assets =$316,800 / $4,441,915 7.1% 49 50 13. Return on stockholder's equity =Net Income / Stockholder's Equity =$316,800 / $2,337,850 13.5% 51 52 53 54 14. Return on common stockholder's equity =(Net Income - Preferred dividend) / Common Stockholder's Equity =($316,800 - $10,500) / $340,000 90.1% 55 56

15. Earnings per share on common Stock =(Net Income - Preferred dividend) / No. of outstanding common shares =(316,900 - $10,500)/($340,000 / $10) $ 9.0 16. Price - earnings ratio =Market Share price / Earnings price per share =$52 / $9.01 $ 5.77 17. Dividends per share of common stock =Common Dividends / No. of outstanding common shares =$30,600 / ($340,000 / $10 0.9 18. Dividend yield =Dividends per share / Market price per share =$0.90 / $52 1.7%

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