The comparative financial statements of Marshall Inc. are as follows. The market price of Marshall common stock was $82.80 on December 31, 20Y2. Marshall Inc.
Comparative Retained Earnings Statement
For the Years Ended December 31, 20Y2 and 20Y1
1 20Y2 20Y1
2 Retained earnings, January 1 $3,704,000.00 $3,264,000.00
3 Net income 600,000.00 550,000.00
4 Total $4,304,000.00 $3,814,000.00
5 Dividends:
6 On preferred stock $10,000.00 $10,000.00
7 On common stock 100,000.00 100,000.00
8 Total dividends $110,000.00 $110,000.00
9 Retained earnings, December 31 $4,194,000.00 $3,704,000.00
Marshall Inc.
Comparative Income Statement
For the Years Ended December 31, 20Y2 and 20Y1
1 20Y2 20Y1
2 Sales $10,850,000.00 $10,000,000.00
3 Cost of goods sold 6,000,000.00 5,450,000.00
4 Gross profit $4,850,000.00 $4,550,000.00
5 Selling expenses $2,170,000.00 $2,000,000.00
6 Administrative expenses 1,627,500.00 1,500,000.00
7 Total operating expenses $3,797,500.00 $3,500,000.00
8 Income from operations $1,052,500.00 $1,050,000.00
9 Other revenue 99,500.00 20,000.00
10 $1,152,000.00 $1,070,000.00
11 Other expense (interest) 132,000.00 120,000.00
12 Income before income tax $1,020,000.00 $950,000.00
13 Income tax expense 420,000.00 400,000.00
14 Net income $600,000.00 $550,000.00
Marshall Inc.
Comparative Balance Sheet December 31, 20Y2 and 20Y1
1 20Y2 20Y1
2 Assets
3 Current assets:
4 Cash $1,050,000.00 $950,000.00
5 Marketable securities 301,000.00 420,000.00
6 Accounts receivable (net) 585,000.00 500,000.00
7 Inventories 420,000.00 380,000.00
8 Prepaid expenses 108,000.00 20,000.00
9 Total current assets $2,464,000.00 $2,270,000.00
10 Long-term investments 800,000.00 800,000.00
11 Property, plant, and equipment (net) 5,760,000.00 5,184,000.00
12 Total assets $9,024,000.00 $8,254,000.00
13 Liabilities
14 Current liabilities $880,000.00 $800,000.00
15 Long-term liabilities:
16 Mortgage note payable, 6% $200,000.00 $0.00
17 Bonds payable, 4% 3,000,000.00 3,000,000.00
18 Total long-term liabilities $3,200,000.00 $3,000,000.00
19 Total liabilities $4,080,000.00 $3,800,000.00
20 Stockholders' Equity
21 Preferred 4% stock, $5 par $250,000.00 $250,000.00
22 Common stock, $5 par 500,000.00 500,000.00
23 Retained earnings 4,194,000.00 3,704,000.00
24 Total stockholders' equity $4,944,000.00 $4,454,000.00
25 Total liabilities and stockholders' equity $9,024,000.00 $8,254,000.00
Determine the following measures for 20Y2 round to one decimal place, including percentages, except for pre-share amounts):
1. Working Capital
2. Current ratio
3. Quick ratio
4. Accounts receivable turnover
5. Number of days' sales in receivables
6. Inventory turnover
7. Number of days' sales in inventory
8. Ratio of fixed assets to long-term liabilities
9. Ratio of liabilities to stockholders' equity
10. Times interest earned
11. Asset turnover
12. Return on total assets
13. Return on stockholders' equity
14. Return on common stockholders' equity
15. Earnings per share on common stock
16. Price-earnings ratio
17. Dividends per share of common stock
18. Dividend yield

Marshall Inc.

Ratios:

1. Working Capital  = Current assets - Current liabilities

= $2,464,000 - 880,000 = $1,584,000

2. Current ratio  = Current Assets/Current Liabilities

= $2,464,000/880,000 = 2.8 : 1

3. Quick ratio  = (Current Assets - Inventory)/Current Liabilities

= ($2,464,000 - 420,000)/880,000

= $2,044,000/880,000 = 2.3 : 1

4. Accounts receivable turnover  = Average Accounts Receivable / Net Sales

= $542,500/10,850,000 = 0.05 times

Average receivables = ($585,000 + 500,000)/2 = $542,500

5. Number of days' sales in receivables  = Days in the year/Accounts receivable turnover

= 365/0.05 = 7,300 days

6. Inventory turnover  = Cost of goods sold / Average Inventory

= $6,000,000/400,000 = 15 times

Average Inventory = (Beginning inventory + Ending inventory) / 2

= ($420,000 + 380,000)/2 = $400,000

7. Number of days' sales in inventory  = Number of days in a year divided by Inventory turnover ratio = 365 /15 = 24.3 days

8. Ratio of fixed assets to long-term liabilities  = Fixed Assets/Long-term Liabilities = $5,760,000/3,200,000 = 1.8 : 1

9. Ratio of liabilities to stockholders' equity  = Total Liabilities/Stockholders' equity = $4,080,000 / $4,944,000 = 0.83 or 80%

10. Times interest earned  = Earnings before Interest and Taxes / Interest Expense = $1,152,000/132,000 = 8.7 times

11. Asset turnover  = Sales Revenue / Average Total Assets

= $6,000,000/$8,639,000 = 0.7 or 70%

Average Total Assets = Beginning total assets + Ending total assets, all divided by 2

= ($9,024,000 + 8,254,000)/2 = $8,639,000

12. Return on total assets  = EBIT/Average Total Assets

= $1,152,000/$8,639,000 = 13%

13. Return on stockholders' equity  = Earnings after tax/Shareholders' equity = $600,000/$4,944,000 x 100 = 12%

14. Return on common stockholders' equity  = EAT/Common Shareholders' Equity = $600,000 - 10,000/($4,944,000 - 250,000) x 100

= 12.6%

15. Earnings per share (EPS) on common stock  = Net Income divided by the number of outstanding common shares = $600,000/100,000 = $6 per share.

16. Price-earnings ratio  = Market price of shares/EPS = $82.80/$6 = 13.8

17. Dividends per share of common stock  = Dividends/Common Stock shares = $100,000/100,000 shares = $1

18. Dividend yield = Dividend per share / Market price per share = $1/$82.80 = 1.2%

Explanation:

1. Working Capital  is the difference between current assets and current liabilities.

2. Current ratio  is a liquidity ratio of current assets over current liabilities.

3. Quick ratio  is the current ratio modified with the subtraction of inventory.

4. Accounts receivable turnover  is an accounting measure that shows how quickly customers pay for the credit sales.

5. Number of days' sales in receivables  measures the number of days it takes a company to collect its credit sales.  It is a function of the number of days in a year divided by the accounts receivable turnover ratio.

6. Inventory turnover  is a ratio showing how many times a company has sold and replaced its inventory during a given period.

7. Number of days' sales in inventory  is the result of dividing the days in the period by the inventory turnover formula.  It shows the number of days inventory is held before being sold.

8. Ratio of fixed assets to long-term liabilities  shows how much of long-term liabilities is represented in fixed assets.

9. Ratio of liabilities to stockholders' equity  is a financial leverage ratio that shows the relationship between liabilities and stockholders' equity.

10. Times interest earned  (TIE) ratio measures the ability of a company to settle its debt obligations based on its current income.  To calculate the TIE number, take the Earnings before interest and taxes (EBIT) and  divide by the total interest expense.

11. Asset turnover  is a ratio of sales over average assets, which shows company's efficiency in using assets to generate sales.

12. Return on total assets  measures the percentage of earnings before interest and taxes over the average total assets.  It can  be obtained by multiplying profit margin with total asset turnover.

13. Return on stockholders' equity  is a financial ratio that is calculated by dividing a company's earnings after taxes (EAT) by the total shareholders' equity, and then multiplying the result by 100.

14. Return on common stockholders' equity  measures the ratio of earnings after taxes less Preferred Stock Dividend over the common shareholders' equity.

15. Earnings per share on common stock  is the ratio of earnings divided by the number of outstanding common stock shares.  It measures the earnings per share that the company has generated for the common stockholders.

16. Price-earnings ratio  is a ratio of the market price of shares over the earnings per share.  It is used to determine if a company's share is overvalued or undervalued.

17. Dividends per share of common stock  is the dividend paid divided by the number of outstanding common stock.

18. Dividend yield is the ratio of the dividend per share over the market price per share.

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