Question

PR 17-46 Nineteen measures of solvency and profitability OBJ. 2,3 The comparative financial statements of Stargel Inc. are as follows. The market price of Stargel Inc, common stock was $119.70 on December 31, 2014 Stargel Ine. Comparative Retained Earnings Statement For the Years Ended December 31, 2014 and 2013 2014 Retained earnings, January 1 $5,375,000 Add net income for year 900,000 Total $6.275,000 Deduct dividends: On preferred stock $ 45,000 On common stock. 50,000 Total. $ 95,000 Retained earnings, December 31 $6,180,000 2013 54,545,000 925,000 $5,470,000 $ 45,000 50,000 $ 95,000 $5,375,000 (Continued

Answer 1

Answer :

1. Working Capital = Current Assets - Current liability

= $3,690,000 - $900,000

= $2,790,000

2. Current ratio = Current Assets / Current liability

= $3,690,000 / $900,000

= 4.1

3. Quick ratio = (Cash + Marketable security + Account receivable) / Current liability

= ($500,000 + $1,010,000 + $740,000) / $900,000

= $2,250,000 / $900,000

= 2.5

4. Account receivable turnover ratio = Net Credit sales / Average Account receivable

Average Account receivable = ($740,000 + $510,000) / 2 = $625,000

Account receivable turnover ratio

= $10,000,000 / $625,000

= 16 times

5. Number of days sales in receivables = 365 days / Account receivable turnover ratio

= 365 days / 16 times

= 22.8 days

6. Inventory Turnover ratio = COGS / Average Inventory

Average Inventory = ($1,190,000 + $950,000) / 2 = $1,070,000

Inventory Turnover ratio

= $5,350,000 / $1,070,000

= 5 times

7. Number of days sales in inventory = 365 days / Inventory Turnover ratio

= 365 days / 5 times

= 73 days

8. Fixed asset to long term liabilities ratio = Fixed Assets / Long-term Liabilities

= ($2,350,000 + $3,740,000) / $1,700,000

= $6,090,000 / $1,700,000

= 3.6