Measures of liquidity, Solvency and Profitability The comparative financial stat
ID: 2331964 • Letter: M
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.
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.
1. Asset turnover
3. Return on stockholders’ equity
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 $ 1,265,700Explanation / Answer
1 Asset Turnover = Sales / Average Total Assets
=1,714,770/((3841740+3509611)/2)
=46.7%
Return on total assets =Earnings before interest and taxes ÷ Total assets
=449,500/3,841,740
=11.7%
3. Return on stockholders’ equity
Return on Equity = Net Income/average stockholders' equity
=304,000/((2,134,300+ 1,865,700)/2)
=15.2%
4. Return on common stockholders’ equity
(Net income-preferred dividend )/ average common stockholders' equity
=(304000-9800)/(2,134,300-280000+1,865,700-280000)/2)
=17.10%
Price-earnings ratio
market price per share/EPS
EPS=Net income-dividend/No of shares
=(304000-9800)/32000
=9.19
Price-earnings ratio
=market price per share/EPS
=64/9.19 =7.00
Dividend yield=Dividend Paid per share /Market Price
Dividend Paid per share=25600/32000=.80
Dividend yield=Dividend Paid per share /Market Price
=.80/64 =1.3%
2. Return on total assetsReturn on total assets =Earnings before interest and taxes ÷ Total assets
=449,500/3,841,740
=11.7%
3. Return on stockholders’ equity
Return on Equity = Net Income/average stockholders' equity
=304,000/((2,134,300+ 1,865,700)/2)
=15.2%
4. Return on common stockholders’ equity
(Net income-preferred dividend )/ average common stockholders' equity
=(304000-9800)/(2,134,300-280000+1,865,700-280000)/2)
=17.10%
Price-earnings ratio
market price per share/EPS
EPS=Net income-dividend/No of shares
=(304000-9800)/32000
=9.19
Price-earnings ratio
=market price per share/EPS
=64/9.19 =7.00
Dividend yield=Dividend Paid per share /Market Price
Dividend Paid per share=25600/32000=.80
Dividend yield=Dividend Paid per share /Market Price
=.80/64 =1.3%