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 $ 71 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			$ 2,461,325		$ 2,069,975
Net income			570,000		424,000
Total			$ 2,966,025		$ 2,493,975
Dividends
	On preferred stock		$ 7,000		$ 7,000
	On common stock		25,650		25,650
		Total dividends	$ 32,650		$ 32,650
Retained earnings, December 31			$ 2,998,675		$ 2,461,325

Marshall Inc.
Comparative Income Statement
For the Years Ended December 31, 20Y2 and 20Y1
	20Y2		20Y1
Sales	$ 3,919,370		$ 3,611,160
Cost of goods sold	1,312,540		1,207,540
Gross profit	$ 2,606,830		$ 2,403,620
Selling expenses	$ 935,880		$ 1,140,250
Administrative expenses	797,240		669,670
Total operating expenses	1,733,120		1,809,920
Income from operations	$ 873,710		$ 593,700
Other income	45,990		37,900
	$ 919,700		$ 631,600
Other expense (interest)	272,000		149,600
Income before income tax	$ 647,700		$ 482,000
Income tax expense	77,700		58,000
Net income	$ 570,000		$ 424,000

Marshall Inc.
Comparative Balance Sheet
December 31, 20Y2 and 20Y1
			Dec. 31, 20Y2		Dec. 31, 20Y1
Assets
Current assets
	Cash		$ 750,890		$ 607,950
	Marketable securities		1,136,480		1,007,460
	Accounts receivable (net)		686,200		642,400
	Inventories		511,000		394,200
	Prepaid expenses		142,059		121,590
		Total current assets	$ 3,226,629		$ 2,773,600
Long-term investments			897,589		13,273
Property, plant, and equipment (net)			4,420,000		3,978,000
Total assets			$ 8,544,218		$ 6,764,873
Liabilities
Current liabilities			$ 1,075,543		$ 1,363,548
Long-term liabilities
	Mortgage note payable, 8 %		$ 1,530,000		$ 0
	Bonds payable, 8 %		1,870,000		1,870,000
		Total long-term liabilities	$ 3,400,000		$ 1,870,000
Total liabilities			$ 4,475,543		$ 3,233,548
Stockholders' Equity
Preferred $ 0.70 stock, $ 50 par			$ 500,000		$ 500,000
Common stock, $ 10 par			570,000		570,000
Retained earnings			2,998,675		2,461,325
	Total stockholders' equity		$ 4,068,675		$ 3,531,325
Total liabilities and stockholders' equity			$ 8,544,218		$ 6,764,873

Required:

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.

Return on stockholders’ equity		%
Return on common stockholders’ equity		%
Earnings per share on common stock	$
Price-earnings ratio
Dividends per share of common stock	$
Dividend yield

Answer 1

1. Return on Stockholder's quity: Net income after tax/ Average stockholders equity
Average Stockholder equity (3531325+4068675)/2= $3800,000
Net income after tax: $ 570000
Return on Stockholders' equity: 570000/3800,000 *100 = 15%
2. Return on Common Stocllholder' equity: Net income after preferred div / Averagee common Stoclholder sequity
Average common Stocholder's equity : 3800,000 - 500,000 = 3300,000
Net income after preferred dividend: 570000-7000 = 563000
Return on Common Sstockholder's equity: 563000 /3300,000*100= 17.06%
3.Earnings per share: Net income after dividend / Number of shares
		563000 /57000 = $9.88 per share
4. Price earning ratio: market prikce per share/ Earning per share
		71 / 9.88 = 7.19
5. Dividend per share of common stock: Total dividend/ Number of common Shares
			25650 / 57000 = $ 0.45 per share
6. Dividend yield ratio: Dividend per share/ market price per share*100
		0.45/ 71 *100 = 0.63%