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 $ 71 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.

Marshall Inc. Comparative Retained Earnings Statement For the Years Ended December 31, 20Y2 and 20Y1    20Y2    20Y1 Retained earnings, January 1 $ 2,461,325 $ 2,069,975 Net income 570,000 424,000 Total $ 2,966,025 $ 2,493,975 Dividends On preferred stock $ 7,000 $ 7,000 On common stock 25,650 25,650 Total dividends $ 32,650 $ 32,650 Retained earnings, December 31 $ 2,998,675 $ 2,461,325

Explanation / Answer

1. Return on Stockholder's quity: Net income after tax/ Average stockholders equity Average Stockholder equity (3531325+4068675)/2= $3800,000 Net income after tax: $ 570000 Return on Stockholders' equity: 570000/3800,000 *100 = 15% 2. Return on Common Stocllholder' equity: Net income after preferred div / Averagee common Stoclholder sequity Average common Stocholder's equity : 3800,000 - 500,000 = 3300,000 Net income after preferred dividend: 570000-7000 = 563000 Return on Common Sstockholder's equity: 563000 /3300,000*100= 17.06% 3.Earnings per share: Net income after dividend / Number of shares 563000 /57000 = $9.88 per share 4. Price earning ratio: market prikce per share/ Earning per share 71 / 9.88 = 7.19 5. Dividend per share of common stock: Total dividend/ Number of common Shares 25650 / 57000 = $ 0.45 per share 6. Dividend yield ratio: Dividend per share/ market price per share*100 0.45/ 71 *100 = 0.63%

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