Question

1. Twenty metrics of liquidity, Solvency, and Profitability

   The comparative financial statements of Automotive Solutions Inc. are as follows. The market price of Automotive Solutions Inc. common stock was $119.70 on December 31, 20Y8.

   AUTOMOTIVE SOLUTIONS INC. Comparative Income Statement For the Years Ended December 31, 20Y8 and 20Y7
   	20Y8		20Y7
   Sales	$10,000,000		$ 9,400,000
   Cost of goods sold	(5,350,000)		(4,950,000)
   Gross profit	$ 4,650,000		$ 4,450,000
   Selling expenses	$ (2,000,000)		$(1,880,000)
   Administrative expenses	(1,500,000)		(1,410,000)
   Total operating expenses	$ (3,500,000)		$(3,290,000)
   Operating income	$ 1,150,000		$ 1,160,000
   Other revenue and expense:
   Other revenue	150,000		140,000
   Other expense (interest)	(170,000)		(150,000)
   Income before income tax	$ 1,130,000		$ 1,150,000
   Income tax expense	(230,000)		(225,000)
   Net income	$ 900,000		$ 925,000

   AUTOMOTIVE SOLUTIONS INC. Comparative Statement of Stockholders’ Equity For the Years Ended December 31, 20Y8 and 20Y7
   	20Y8									20Y7
   	Preferred Stock			Common Stock			Retained Earnings			Preferred Stock			Common Stock			Retained Earnings
   Balances, Jan. 1		$500,000			$500,000			$5,375,000			$500,000			$500,000			$4,545,000
   Net income								900,000									925,000
   Dividends:
   Preferred stock								(45,000)									(45,000)
   Common stock								(50,000)									(50,000)
   Balances, Dec. 31		$500,000			$500,000			$6,180,000			$500,000			$500,000			$5,375,000

   AUTOMOTIVE SOLUTIONS INC. Comparative Balance Sheet December 31, 20Y8 and 20Y7
   	Dec. 31, 20Y8		Dec. 31, 20Y7
   Assets
   Current assets:
   Cash	$ 500,000		$ 400,000
   Marketable securities	1,010,000		1,000,000
   Accounts receivable (net)	740,000		510,000
   Inventories	1,190,000		950,000
   Prepaid expenses	250,000		229,000
   Total current assets	$3,690,000		$3,089,000
   Long-term investments	2,350,000		2,300,000
   Property, plant, and equipment (net)	3,740,000		3,366,000
   Total assets	$9,780,000		$8,755,000
   Liabilities
   Current liabilities	$ 900,000		$ 880,000
   Long-term liabilities:
   Mortgage note payable, 10%	$ 200,000		$ 0
   Bonds payable, 10%	1,500,000		1,500,000
   Total long-term liabilities	$1,700,000		$1,500,000
   Total liabilities	$2,600,000		$2,380,000
   Stockholders' Equity
   Preferred $0.90 stock, $10 par	$ 500,000		$ 500,000
   Common stock, $5 par	500,000		500,000
   Retained earnings	6,180,000		5,375,500
   Total stockholders' equity	$7,180,000		$6,375,000
   Total liabilities and stockholders' equity	$9,780,000		$8,755,000

   Instructions:

   Determine the following measures for 20Y8.

   Round ratio values to one decimal place and dollar amounts to the nearest cent. For number of days' sales in receivables and number of days' sales in inventory, round intermediate calculations to the nearest whole dollar and final amounts to one decimal place. Assume there are 365 days in the year.

   1. Working capital	$
   2. Current ratio
   3. Quick ratio
   4. Accounts receivable turnover
   5. Days' sales in receivables		days
   6. Inventory turnover
   7. Days' sales in inventory		days
   8. Debt ratio		%
   9. Ratio of liabilities to stockholders' equity
   10. Ratio of fixed assets to long-term liabilities
   11. Times interest earned		times
   12. Times preferred dividends earned		times
   13. Asset turnover
   14. Return on total assets		%
   15. Return on stockholders’ equity		%
   16. Return on common stockholders’ equity		%
   17. Earnings per share on common stock	$
   18. Price-earnings ratio
   19. Dividends per share of common stock	$
   20. Dividend yield		%

Answer 1

Metrics	Result		Details	Formula
1. Working capital	$2,790,000		=3690000-900000	Current Assets Less Current Liabilities
2. Current ratio	4.10		=3690000/900000	Current Assets Divided by Current Liabilities
3. Quick ratio	2.50		=(500000+1010000+740000)/900000	Cash + Marketable Securities + Accounts Receivable/ Current Liabilities
4. Accounts receivable turnover	16.00		=10000000/((740000+510000)/2)	Sales / ((Opening Accounts Receivable + Closing Accounts Receivable) / 2)
5. Days' sales in receivables	27.01	days	=740000/10000000*365	Accounts Receivables / Sales * 365
6. Inventory turnover	9.35		=10000000/((1190000+950000)/2)	Sales / ((Opening Inventory + Closing Inventory) / 2)
7. Days' sales in inventory	43.44	days	=1190000/10000000*365	Inventory / Sales * 365
8. Debt ratio	19%	%	=1700000/(1700000+7180000)	Debt / (Debt + Equity)
9. Ratio of liabilities to stockholders' equity	0.36		=2600000/7180000	Total Liabilities / Total Stockholders Equity
10. Ratio of fixed assets to long-term liabilities	1.44		=3740000/2600000	Total Fixed Assets / Total Long term liabilities
11. Times interest earned	7.65	times	=(1150000+150000)/170000	(Operating Income + Other Revenues) / Interest cost
12. Times preferred dividends earned	20.00	times	=900000/45000	Net Income / Preferred Dividend
13. Asset turnover	2.81		=10000000/((3740000+3366000)/2)	Sales / ((Opening Fixed Assets + Closing Fixed Assets) / 2)
14. Return on total assets	9.7%	%	=900000/((9780000+8755000)/2)	Net Income / ((Opening Total Assets + Closing Total Assets) / 2)
15. Return on stockholders’ equity	13.3%	%	=900000/((7180000+6375000)/2)
16. Return on common stockholders’ equity	13.6%	%	=(900000-45000)/(((7180000-500000)+(6375000-500000))/2)	Net Income less preferred dividend / total number of shares / (Opening total equity less preferred stock+closing total equity less preferred stock)/2
17. Earnings per share on common stock	8.55		=(900000-45000)/100000	Net Income less preferred dividend / total number of shares. Total number of shares calculated as paid up share capital / par value per share (500000/5)
18. Price-earnings ratio	14.00		=119.7/8.55	Share price as on 31 Dec 2018 / earning per share
19. Dividends per share of common stock	0.50		=(50000)/100000	Total Dividend / total common shareholders equity
20. Dividend yield	3.57%	%	=0.5/14	Dividend per share / EPS