Measures of liquidity, Solvency and Profitability The comparative financial stat
ID: 2537810 • 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 $ 51 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 $ 1,669,675 $ 1,421,825 Net income 364,000 291,200 Total $2,033,675 $ 1,713,025 Dividends: On preferred stock $ 12,600 $ 12,600 On common stock 30,750 30,750 Total dividends $ 43,350 $ 43,350 Retained earnings, December 31 $ 1,990,325 $ 1,669,675Explanation / Answer
Answer to Part 1.
Working Capital = Current Assets – Current Liabilities
Working Capital = $1,728,084 - $508,260
Working Capital = $1,219,824
Answer to Part 2.
Current Ratio = Current Assets /Current Liabilities
Current Ratio = 1,728,084 / 508,260
Current Ratio = 3.4: 1
Answer to Part 3.
Quick Ratio = (Current Assets – Inventories) /Current Liabilities
Quick Ratio = (1,728,084 – 292,000) / 508,260
Quick Ratio = 1,436,084 / 508,260
Quick Ratio = 2.8: 1
Answer to Part 4.
Accounts Receivable Turnover = Net Sales / Average Accounts Receivable
Average Accounts Receivable = (394,200 + 372,300) / 2
Average Accounts Receivable = $383,250
Accounts Receivable Turnover = 2,261,175 / 383,250
Accounts Receivable Turnover = 5.9 times
Answer to Part 5.
Number of days’ sales in Receivable = 365 / Accounts Receivable Turnover Ratio
Number of days’ sales in Receivable = 365 / 5.9
Number of days’ sales in Receivable = 61.86 or 62 days