Measures of liquidity, Solvency and Profitability The comparative financial stat
ID: 2334530 • Letter: M
Question
Measures of liquidity, Solvency and Profitability
The comparative financial statements of Marshall Inc. are as follows. The market price of Marshall common stock was $ 62 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 $ 2,842,400 $ 2,417,000
Net income 624,800 495,000
Total $3,467,200 $ 2,912,000
Dividends:
On preferred stock $ 8,400 $ 8,400
On common stock 61,200 61,200
Total dividends $ 69,600 $ 69,600
Retained earnings, December 31 $ 3,397,600 $ 2,842,400
Marshall Inc.
Comparative Income Statement
For the Years Ended December 31, 20Y2 and 20Y1
20Y2 20Y1
Sales $ 4,062,450 $ 3,742,900
Cost of goods sold 1,554,900 1,430,510
Gross profit $ 2,507,550 $ 2,312,390
Selling expenses $ 829,790 $ 1,021,540
Administrative expenses 706,860 599,950
Total operating expenses 1,536,650 1,621,490
Income from operations $ 970,900 $ 690,900
Other revenue 51,100 44,100
$ 1,022,000 $ 735,000
Other expense (interest) 312,000 172,000
Income before income tax $ 710,000 $ 563,000
Income tax expense 85,200 68,000
Net income $ 624,800 $ 495,000
Marshall Inc.
Comparative Balance Sheet
December 31, 20Y2 and 20Y1
Dec. 31, 20Y2 Dec. 31, 20Y1
Assets
Current assets
Cash $ 828,480 $ 529,820
Marketable securities 1,253,920 877,990
Accounts receivable (net) 788,400 744,600
Inventories 584,000 452,600
Prepaid expenses 156,744 105,960
Total current assets $ 3,611,544 $ 2,710,970
Long-term investments 1,921,416 40,158
Property, plant, and equipment (net) 4,290,000 3,861,000
Total assets $ 9,822,960 $ 6,612,128
Liabilities
Current liabilities $ 1,245,360 $ 339,728
Long-term liabilities
Mortgage note payable, 8 % $ 1,750,000 $ 0
Bonds payable, 8 % 2,150,000 2,150,000
Total long-term liabilities $ 3,900,000 $ 2,150,000
Total liabilities $ 5,145,360 $ 2,489,728
Stockholders' Equity
Preferred $ 0.70 stock, $ 50 par $ 600,000 $ 600,000
Common stock, $ 10 par 680,000 680,000
Retained earnings 3,397,600 2,842,400
Total stockholders' equity $ 4,677,600 $ 4,122,400
Total liabilities and stockholders' equity $ 9,822,960 $ 6,612,128
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.
10. Times interest earned
11. Asset turnover
12. Return on total assets %
13. Return on stockholders’ equity %
Explanation / Answer
Times Interest earned= (EBIT+Interest)/Interest
=$1,02,000+132,000/132,00
=8.7 times
Asset Turnover= Sales/Average Assets
Average Assets=9,024,000+8,254,000/2=$8,639,000
Assets Turnover=10,850,000/8,639,000
=1.3
12 Return on total assets= EBIT/Average Assets
=$10,200,000/86,390,000
=11.8%
13 Return on Stockholders' Equity = Net Income/Average Stock holders equity
Average Stock holders equity= $49,440,000+44,540,000/2=$46,990,000
Return on Stockholders' Equity= 600,000/46,990,000= 12.8%