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 common stock was $ 68 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 $ 1,934,150 $ 1,627,150 Net income 438,000 333,300 Total $2,372,150 $ 1,960,450 Dividends: On preferred stock $ 5,600 $ 5,600 On common stock 20,700 20,700 Total dividends $ 26,300 $ 26,300 Retained earnings, December 31 $ 2,345,850 $ 1,934,150

Explanation / Answer

1.

Working capital

= Total currrent assets - Total current liabilities

= $1,994,040 - $664,680

= $1,329,360

2.

Current ratio

= Total current assets/Total current liabilities

= $1,994,040/$664,680

= 3 times

3.

Quick ratio

= (Total current assets - Inventories - Prepaid expenses)/Total current liabilities

= ($1,994,040 - $350,400 - $82,870)/$664,680

= 2.35 times

4.

Accounts receivable turnover

= Sales/Average accounts receivable

= $2,671,800/[($459,900+$430,700)/2]

= 6 times

5.

Number of days in sales receivable

= Number of years in a year/Accounts receivable turnover

= 365 days/6

= 60.83 days

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