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 $82.60 on December 31, 20Y2.

Marshall Inc. Comparative Retained Earnings Statement For the Years Ended December 31, 2012 and 2041 2012 2011 Retained earnings, January 1 $3,704,000 $3,264,000 Net income $ 600,000 $ 550,000 Dividends: On preferred stock (10,000) (10,000) On common stock (100,000) (100,000) Increase in retained earnings $ 490,000 $ 440,000 Retained earnings, December 31 $4,194,000 $3,704,000 Marshall Inc. Comparative Income Statement For the Years Ended December 31, 2012 and 2041 2012 2011 Sales $ 10,850,000 $10,000,000 Cost of goods sold (6,000,000) (5,450,000) Gross profit $ 4,850,000 $ 4,550,000 Selling expenses $ (2,170,000) $2,000,000) Administrative expenses (1,627,500) (1,500,000) Total operating expenses $(3,797,500) $ (3,500,000) Operating income $ 1,052,500 $ 1,050,000 Other revenue and expense: Other revenue 99,500 20,000 Other expense (interest) (132,000) (120,000) Income before income tax expense $ 1,020,000 $ 950,000 Income tax expense (420,000) (400,000) Net income $ 600,000 $ 550,000

Determine the following measures for 20Y2. Round to one decimal place, including percentages, except for per-share amounts, which should be rounded to the nearest cent.

Working Capital	$
Current Ratio
Quick Ratio
Accounts receivable turnover
Number of days' sales in receivables
Inventory turnover
Number of days' sales in inventory
Ratio of fixed assets to long-term liabilities
Times interest earned
Asset turnover	%
Return on total assets	%
Return on stockholders' equity	%
Earnings per share on common stock	$
Price-earnings ratio
Dividends per share of common stock	$
Dividend yield	%

Answer 1

1. Subtract current liabilities from current assets. .. =$2,464,000 - $880,000 1584000 1 2. Divide curent assets by current liabilities =$2,464,000 / $880,000 2.800 3. Divide quick assets by current liabilities. Quick assets are =($1,050,000 + $301,000 + $585,000 + $108,000) / $880,000 2.323 cash, temporary investments, and receivables 4. Divide sales by average accounts receivable. Average Accounts receivable = (Beginning Net Accounts Receivable + 3 =$10,85,000 / (($585,000+$500,000)/2) 20.000 Ending Net Accounts Receivable) - 2. 5. Divide average accounts receivable by average daily sales. Average Accounts receivable = (Beginning Net Accounts Receivable + Ending Net Accounts Receivable) ÷ 2. Average daily sales are sales divided by 365 days. 6. Divide cost of goods sold by average inventory. Average Inventory = (Beginning Inventories + Ending Inventories) 2. 7. Divide average inventory by average daily cost of goods sold. Average Inventory = (Beginning Inventories + Ending Inventories) - 2. Average daily cost of goods sold is cost of goods sold divided by 365 days. 8. Divide property, plant, and equipment (net) by long-term 4 =(($585,000 + $500,000)/2) / $1,050,000 * 365 days 188.583 =$6,000,000 / (($420,000 + $380,000)/2) 15.000 6. =(($420,000 + $380,000)/2) / $6,000,000 * 365 days 24.333 =$5,760,000 / $3,200,000 1.800 liabilities. 9. Divide total liabilities by total stockholders' equity. 10. Divide the sum of income before income tax expense and interest expense by interest expense. 11. Divide sales by average total assets, excluding long-term investments. Average total assets = (Beginning total assets + Ending total assets) ÷ 2. 12. Divide the sum of net income and interest expense by average total assets. Average total assets = (Beginning total assets + Ending total assets) ÷ 2. =$4,080,000 / $4,944,000 0.825 9. =($1,052,500 + $132,000) / $132,000 8.973 10 =$10,850,000 / ((($9,024,000 - $800,000)+($8,254,000 - $800,000))/2) 1.384 11 =($600,000 + $132,000) / ((($9,024,000 - $800,000)+($8,254,000 - $800,000))/2) 0.093 12

13. Divide net income by average total stockholders' equity. Average total stockholders' equity = (Beginning total stockholders' equity + Ending total stockholders' equity) + 2. 14. Divide net income minus preferred dividends from the retained earnings statement by average common stockholders' equity. Common stockholders' equity = Common stock + Retained earnings. Average common stockholders' equity (Beginning common stockholders' equity + Ending common stockholders' equity) ÷ 2. =$600,000 / ((S4,944,000 + $4,454,000)/2) 0.128 13 =($600,000 - $10,000) / ((($500,000+$4,194,000) + ($500,000+$3,704,000)/2) 0.087 14 15. Divide net income minus preferred dividends from the retained earnings statement by common shares outstanding (common stock ÷ par value). 16. Divide common market share price by common earnings per share (use answer from requirement 15). 17. Divide common dividends (from Retained Earnings Statement) by common shares outstanding (common stock ÷ par value). 18. Divide common dividends per share (use answer from =($600,000 - $10,000) / ($500,000 / $5) 5.900 15 = $82.60 / $5.90 14.000 16 =$100,000 / ($500,000 / $5) 1.00 17 = $1 / $82.60 1.21% requirement 17) by market share price. 18 19

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