Measures of liquidity, Solvency and Profitability The comparative financial stat
ID: 2584683 • 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 $ 56 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 $ 1,942,900 $ 1,649,000 Net income 438,000 337,700 Total $ 2,293,300 $ 1,986,700 Dividends On preferred stock $ 7,000 $ 7,000 On common stock 36,800 36,800 Total dividends $ 43,800 $ 43,800 Retained earnings, December 31 $ 2,337,100 $ 1,942,900Explanation / Answer
1. Working Capital = Current assets - Current liabilities = 2303126-677390 = $ 1625736
2. Current ratio = Current assets / Current liabilities = 2303126/677390 = 3.4 : 1
3. Quick ratio = (Total current assets - Inventory - Prepaid exp) / Current liabilities = (2303126 - 365000 - 101436) / 677390 = 1836690 / 677390 = 2.71 : 1
4. Net sales = $ 2609750
Average accounts receivable = (489100+459900) / 2 = 474500
Accounts receivable turnover = Net credit sales / Avg accounts receivable = 2609750 / 474500 = 5.5 times
5. Number of days' sales in receivables = No. of days in a year / Accounts turnover ratio = 365 / 5.5 = 66.36 = 66 days
6. COGS = $ 899360
Average inventory = (365000+277400) / 2 = $ 321200
Inventory turnover ratio = COGS / Avg Inventory = 899360 / 321200 = 2.8 times
7. Number of days' sales in inventory = No. of days in a year / Inventory turnover ratio = 365 / 2.8 = 130.36 = 130 days
8. Ratio of fixed assets to long-term liabilities = Fixed assets / long term debts = 2,640,000 / 2,200,000 = 1.2 times
9. Ratio of liabilities to stockholders' equity = Total liabilities / Stockholder's equity = 2877390 / 3197100 = 0.9 : 1
10. Income before interest and tax = Income before tax + interest exp = 497700 + 176000 = 673700
Times interest earned = EBIT / Interest expense = 673700 / 176000 = 3.8 times
11. Avg total assets = (6074490 + 4697440) / 2 = 5385965
Asset turnover = Net sales / Avg total sales = 2609750 / 5385965 = 0.5
12. Return on total assets = EBIT / Total assets = (673700 / 6074490) * 100 = 11.1%
13. Return on stockholders’ equity = Net Income / Shareholder's equity = (438000 / 3197100) * 100 = 10.1%
14. Average common equity = (2797100+2402900) / 2 = 2600000
Return on common stockholders’ equity = [(Net Income - Preferred dividends) / Avg common equity] *100 = [(438000 - 7000) / 2600000] *100 = 16.5%
15. Earning available to common stockholder = Net income - Preferred dividends = 438000 - 7000 = 431000
Outstanding common stock = 460000/10 = 46000
Earnings per share on common stock = 431000 / 46000 = $9.4
16. Market value per share = $56
Price-earnings ratio = Market value per share / EPS = 56 / 9.4 = 5.96 = 6
17. Dividends per share of common stock = Divdends paid out over the year / Shares outstanding = 36800 / 46000 = $ 0.8
18. Dividend yield = Dividend per share / Market price per share = (0.8 / 56)*100 = 1.43%