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 $ 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			$ 1,659,275		$ 1,404,525
Net income			374,400		287,700
Total			$ 2,033,675		$ 1,692,225
Dividends
	On preferred stock		$ 6,300		$ 6,300
	On common stock		26,650		26,650
		Total dividends	$ 32,950		$ 32,950
Retained earnings, December 31			$ 2,000,725		$ 1,659,275

Marshall Inc.
Comparative Income Statement
For the Years Ended December 31, 20Y2 and 20Y1
	20Y2		20Y1
Sales	$ 2,715,600		$ 2,501,970
Cost of goods sold	889,140		818,010
Gross profit	$ 1,826,460		$ 1,683,960
Selling expenses	$ 673,620		$ 807,080
Administrative expenses	573,820		474,000
Total operating expenses	1,247,440		1,281,080
Income from operations	$ 579,020		$ 402,880
Other income	30,480		25,720
	$ 609,500		$ 428,600
Other expense (interest)	184,000		101,600
Income before income tax	$ 425,500		$ 327,000
Income tax expense	51,100		39,300
Net income	$ 374,400		$ 287,700

Marshall Inc.
Comparative Balance Sheet
December 31, 20Y2 and 20Y1
			Dec. 31, 20Y2		Dec. 31, 20Y1
Assets
Current assets
	Cash		$ 527,540		$ 350,660
	Marketable securities		798,440		581,100
	Accounts receivable (net)		467,200		438,000
	Inventories		350,400		262,800
	Prepaid expenses		99,814		70,130
		Total current assets	$ 2,243,394		$ 1,702,690
Long-term investments			1,045,129		173,216
Property, plant, and equipment (net)			2,530,000		2,277,000
Total assets			$ 5,818,523		$ 4,152,906
Liabilities
Current liabilities			$ 747,798		$ 453,631
Long-term liabilities
	Mortgage note payable, 8 %		$ 1,030,000		$ 0
	Bonds payable, 8 %		1,270,000		1,270,000
		Total long-term liabilities	$ 2,300,000		$ 1,270,000
Total liabilities			$ 3,047,798		$ 1,723,631
Stockholders' Equity
Preferred $ 0.70 stock, $ 40 par			$ 360,000		$ 360,000
Common stock, $ 10 par			410,000		410,000
Retained earnings			2,000,725		1,659,275
	Total stockholders' equity		$ 2,770,725		$ 2,429,275
Total liabilities and stockholders' equity			$ 5,818,523		$ 4,152,906

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

Ratios of 20Y2:
Sl.	Ratio	Formula	Calculation-20Y2	Result-20Y2
1	Working Capital	CA-CL	2243394-3047798	-804404
2	Current ratio	CA/CL	2243394/3047798	0.74
3	Quick ratio	(CA-Inv.)/CL	(2243394-350400)/3047798	0.62
4	Acc Rece turnover	Sales/Avg AR	(2715600*2)/(467200+438000)	6.00
5	Number of days' sales in receivables	365/ AR turnover	365/6	60.83
6	Inventory turnover	COGS/ Avg Inv.	(889140*2)/(350400+262800)	2.90
7	Number of days' sales in inventory	365/ Inv. Turnover	365/2.9	125.86
8	Fixed Assets to long term liabilities	FA/LTL	2530000/2300000	1.10
9	Liabilities to Stockholders' equity	TL/SH Eq.	3047798/2770725	1.10
10	Times interest earned	EBIT/Int. paid	609500/184000	3.31
11	Assets turnover	Sales/Avg Assets	(2715600*2)/(5818523+4152906)	0.54
12	Return on total assets	NI/Avg Assets	(374400*2)/(5818523+4152906)	0.08
13	Return on Stockholders' equity	NI/SH Eq.	(374400*2)/(2770725+2429275)	0.14
14	Return on common stockholders' equity	NI after pref divi/ Comm Eq.	(374400-6300)/(2770725 -360000)	0.15
15	Earnings per share on common stock	NI/Outstanding Com shares	(374400-6300)/41000	8.98
16	Price earnings ratio	MP / EPS	59/8.98	6.57
17	Dividends per share of common stock	T Divi/Outstanding com shares	26650/41000	0.65
18	Dividend yield	DPS / MP	0.65/59	0.01