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 $58 on December 31, 20Y8.

AUTOMOTIVE SOLUTIONS INC.
Comparative Income Statement
For the Years Ended December 31, 20Y8 and 20Y7
20Y8   20Y7
Sales   $4,707,040       $4,336,800      
Cost of goods sold   (1,737,400)      (1,598,410)     
Gross profit   $2,969,640       $2,738,390      
Selling expenses   $(960,100)      $(1,216,840)     
Administrative expenses   (817,860)      (714,650)     
Total operating expenses   (1,777,960)      (1,931,490)     
Operating income   $1,191,680       $806,900      
Other revenue and expense:              
Other income   62,720       51,500      
Other expense (interest)   (368,000)       (202,400)      
Income before income tax   $886,400       $656,000      
Income tax expense   (106,400)      (78,600)     
Net income   $780,000      $577,400     

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      $700,000         $800,000         $3,338,900         $700,000         $800,000         $2,819,300     
Net income                        780,000                           577,400     
Dividends:                                                         
Preferred stock                        (9,800)                           (9,800)     
Common stock                        (48,000)                           (48,000)     
Balances, Dec. 31      $700,000         $800,000         $4,061,100         $700,000         $800,000         $3,338,900     

AUTOMOTIVE SOLUTIONS INC.
Comparative Balance Sheet
December 31, 20Y8 and 20Y7
Dec. 31, 20Y8   Dec. 31, 20Y7
Assets     
Current assets:        
Cash   $1,247,490      $718,630     
Temporary investments   1,888,090      1,190,880     
Accounts receivable (net)   934,400      876,000     
Inventories   700,800      540,200     
Prepaid expenses   236,013      143,730     
Total current assets   $5,006,793      $3,469,440     
Long-term investments   1,151,517      24,601     
Property, plant, and equipment (net)   5,520,000      4,968,000     
Total assets   $11,678,310      $8,462,041     
Liabilities
Current liabilities   $1,517,210      $1,093,141     
Long-term liabilities:        
Mortgage note payable, 8%, due in 15 years   $2,070,000      $0     
Bonds payable, 8%, due in 20 years   2,530,000      2,530,000     
Total long-term liabilities   $4,600,000      $2,530,000     
Total liabilities   $6,117,210      $3,623,141     
Stockholders' Equity        
Preferred $0.70 stock, $50 par   $700,000      $700,000     
Common stock, $10 par   800,000      800,000     
Retained earnings   4,061,100      3,338,900     
Total stockholders' equity   $5,561,100      $4,838,900     
Total liabilities and stockholders' equity   $11,678,310      $8,462,041     
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   $
3,489,583

2. Current ratio  
3.3

3. Quick ratio  
2.7

4. Accounts receivable turnover  
5.2

5. Days' sales in receivables  
70.2
days
6. Inventory turnover  
2.8

7. Days' sales in inventory  
130.4
days
8. Debt ratio  
52.4
%
9. Ratio of liabilities to stockholders' equity  
1.1

10. Ratio of fixed assets to long-term liabilities  
1.2

11. Times interest earned  
3.4
times
12. Times preferred dividends earned  
60.0
times
13. Asset turnover  
173.0

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  
%
Feedback
1. Subtract current liabilities from current assets.
2. Divide current assets by current liabilities.
3. Divide quick assets by current liabilities. Quick assets are cash, temporary investments, and receivables.
4. Divide net sales by average accounts receivable. Average Accounts receivable = (Beginning Net Accounts Receivable + 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 net 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 cost of goods sold are cost of goods sold divided by 365 days.
8. Divide total liabilities by total assets.
9. Divide total liabilities by total stockholders’ equity.
10. Divide property, plant and equipment (net) by long-term liabilities.
11. Divide the sum of income before income tax plus interest expense by interest expense.
12. Divide net income by preferred dividends [Preferred stock ÷ par value x dividend per preferred share].
13. Divide net sales by average property, plant & equipment, . Average PPE = (Beginning PPE + Ending PPE) ÷ 2
14. Divide the sum of net income plus interest expense by average total assets. Average total assets = (Beginning Total Assets + Ending Total Assets) ÷ 2
15. Divide net income by average stockholders’ equity. Average stockholders’ equity = (Beginning Stockholders’Equity + Ending Stockholders’Equity) ÷ 2
16. Divide net income minus preferred dividends [Preferred stock ÷ par value x dividend per preferred share] 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
17. Divide net income minus preferred dividends [Preferred stock ÷ par value x dividend per preferred share] by common shares outstanding (common stock ÷ par value).
18. Divide common market share price by common earnings per share (use answer from requirement 17).
19. Divide common dividends (from Statement of Stockholders Equity) by common shares outstanding (common stock ÷ par value).
20. Divide common dividends per share (use answer from requirement 19) by market share price.

Answer 1

working capital	current assets - current liabilities
	20Y8 (amounts in $)
current assets	5006793
current liabilities	1517210
working capital	3489583
current ratio	20Y8 (amounts in $)
	20Y8
current assets	5006793
current liabilities	1517210
current ratio	3.3
quick ratio	20Y8 (amounts in $)
	20Y8
cash	1247490
Temporary investments	1888090
Accounts receivable (net)	934400
quick assets	4069980
current liabilities	1517210
quick ratio	2.7
accounts receivable turnover	net sales / average accounts receivable
	20Y8 (amounts in $)
net sales	4707040
opening accounts receivable	876000
ending accounts receivable	934400
average accounts receivable	905200
accounts receivable turnover	5.2
Days' sales in receivables	average accounts receivable / average daily sales
	20Y8 (amounts in $)
opening accounts receivable	876000
ending accounts receivable	934400
average accounts receivable	905200
net sales	4707040
average daily sales	12896
Days' sales in receivables	70.2
inventory turnover ratio	cost of goods sold / average inventory
	20Y8 (amounts in $)
cost of goods sold	1737400
opening inventory	540200
closing inventory	700800
average inventory	620500
inventory turnover ratio	2.8
Days' sales in inventory	average inventory / average daily cost of goods sold
	20Y8 (amounts in $)
opening inventory	540200
closing inventory	700800
average inventory	620500
cost of goods sold	1737400
average daily cost of goods sold	4760
Days' sales in inventory	130.4
Debt ratio	total liabilities / total assets
	20Y8 (amounts in $)
total liabilities	6117210
total assets	11678310
Debt ratio	0.5
Ratio of liabilities to stockholders' equity	total liabilities / stockholders equity
	20Y8 (amounts in $)
total liabilities	6117210
stockholders equity	5561100
Ratio of liabilities to stockholders' equity	1.1
Ratio of fixed assets to long-term liabilities	property, plant & equipment (net) / long term liabilities
	20Y8 (amounts in $)
Property, plant, and equipment (net)	5520000
Total long-term liabilities	4600000
Ratio of fixed assets to long-term liabilities	1.2