Question

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 $65 on December 31, 20Y8.

AUTOMOTIVE SOLUTIONS INC. Comparative Income Statement For the Years Ended December 31, 20Y8 and 20Y7
	20Y8		20Y7
Sales	$2,163,720		$1,993,570
Cost of goods sold	(882,570)		(811,960)
Gross profit	$1,281,150		$1,181,610
Selling expenses	$(395,770)		$(509,430)
Administrative expenses	(337,140)		(299,190)
Total operating expenses	(732,910)		(808,620)
Operating income	$548,240		$372,990
Other revenue and expense:
Other income	28,860		23,810
Other expense (interest)	(168,000)		(92,800)
Income before income tax	$409,100		$304,000
Income tax expense	(49,100)		(36,200)
Net income	$360,000		$267,800

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		$320,000			$360,000			$1,551,800			$320,000			$360,000			$1,307,600
Net income								360,000									267,800
Dividends:
Preferred stock								(5,600)									(5,600)
Common stock								(18,000)									(18,000)
Balances, Dec. 31		$320,000			$360,000			$1,888,200			$320,000			$360,000			$1,551,800

AUTOMOTIVE SOLUTIONS INC. Comparative Balance Sheet December 31, 20Y8 and 20Y7
	Dec. 31, 20Y8		Dec. 31, 20Y7
Assets
Current assets:
Cash	$553,390		$339,700
Temporary investments	837,570		562,940
Accounts receivable (net)	430,700		401,500
Inventories	321,200		248,200
Prepaid expenses	104,702		67,940
Total current assets	$2,247,562		$1,620,280
Long-term investments	415,658		-125,367
Property, plant, and equipment (net)	2,730,000		2,457,000
Total assets	$5,393,220		$3,951,913
Liabilities
Current liabilities	$725,020		$560,113
Long-term liabilities:
Mortgage note payable, 8%, due in 15 years	$940,000		$0
Bonds payable, 8%, due in 20 years	1,160,000		1,160,000
Total long-term liabilities	$2,100,000		$1,160,000
Total liabilities	$2,825,020		$1,720,113
Stockholders' Equity
Preferred $0.70 stock, $40 par	$320,000		$320,000
Common stock, $10 par	360,000		360,000
Retained earnings	1,888,200		1,551,800
Total stockholders' equity	$2,568,200		$2,231,800
Total liabilities and stockholders' equity	$5,393,220		$3,951,913

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

Answer 1.

Working Capital = Current Assets - Current Liabilities
Working Capital = $2,247,562 - $725,020
Working Capital = $1,522,542

Answer 2.

Current Ratio = Current Assets / Current Liabilities
Current Ratio = $2,247,562 / $725,020
Current Ratio = 3.1 to 1

Answer 3.

Acid-test Ratio = (Current Assets - Inventories - Prepaid Expenses) / Current Liabilities
Acid-test Ratio = ($2,247,562 - $321,200 - $104,702) / $725,020
Acid-test Ratio = 2.5 to 1

Answer 4.

Average Accounts Receivable = ($430,700 + $401,500) / 2
Average Accounts Receivable = $416,100

Accounts Receivable Turnover = Sales / Average Accounts Receivable
Accounts Receivable Turnover = $2,163,720 / $416,100
Accounts Receivable Turnover = 5.2

Answer 5.

Days’ Sales in Receivables = 365 / Accounts Receivable Turnover
Days’ Sales in Receivables = 365 / 5.2
Days’ Sales in Receivables = 70.2 days

Answer 6.

Average Inventory = ($321,200 + $248,200) / 2
Average Inventory = $284,700

Inventory Turnover = Cost of Goods Sold / Average Inventory
Inventory Turnover = $882,570 / $284,700
Inventory Turnover = 3.1

Answer 7.

Days’ Sales in Inventory = 365 / Inventory Turnover
Days’ Sales in Inventory = 365 / 3.1
Days’ Sales in Inventory = 117.7 days