Measures of liquidity, Solvency and Profitability The comparative financial stat

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 $ 64 on December 31, 20Y2.

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.

Marshall Inc. Comparative Retained Earnings Statement For the Years Ended December 31, 20Y2 and 20Y1     20Y2     20Y1 Retained earnings, January 1 $ 1,265,700 $ 1,079,900 Net income 304,000 221,200 Total $ 1,498,900 $ 1,301,100 Dividends On preferred stock $ 9,800 $ 9,800 On common stock 25,600 25,600 Total dividends $ 35,400 $ 35,400 Retained earnings, December 31 $ 1,534,300 $ 1,265,700

Explanation / Answer

a) Working Capital :-

= Current Assets - Current Liabilities

= $1385296 - $407440

= $977856

b) Current Ratio :-

= Current Assets / Current Liabilities

= $1385296 / $407440

= 3.4

c) Quick Ratio :-

= (Cash + Accounts Receivable + Marketable securities) / Current Liabilities

= ($312690+$473250+$306600) / $407440

= $1092540 / $407440

= 2.68

d) Accounts Receivable Turnover :-

= Net Credit Sales / Avg. Accounts Receivable

= $1714770 / (($306600+$284700)/2)

= $1714770 / $295650

= 5.8

e) Number of days' sales in receivables :-

= 365 / Accounts Receivable Turnover

= 365 / 5.8

= 62.93 or 63 Days

f) Inventory Turnover :-

= Cost of Goods Sold / Avg. Inventory

= $633640 / (($233600+$175200)/2)

= $633640 / $204400

= 3.1

g) Number of days' sales in inventory :-

= 365 / Inventory Turnover

= 365 / 3.1

= 117.74 or 118 Days

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