Measures of liquidity, The abi

Question

Measures of liquidity, The ability of a company to make itsperiodic interest payments and repay the face amount of debt atmaturity.Solvency and The ability of a firm to generateearnings.Profitability

The comparative financial statements of Marshall Inc. are asfollows. The market price of Marshall common stock was $ 56 onDecember 31, 20Y2.

Marshall Inc.
Comparative Retained EarningsStatement
For the Years Ended December 31, 20Y2 and20Y1
			20Y2	20Y1
Retained earnings, January 1			$ 1,265,300	$ 1,075,600
Net income			300,000	220,300
Total			$1,565,300	$ 1,295,900
Dividends:
	On preferred stock		$ 9,800	$ 9,800
	On common stock		20,800	20,800
		Total dividends	$ 30,600	$ 30,600
Retained earnings, December 31			$ 1,534,700	$ 1,265,300

Marshall Inc.
Comparative Income Statement
For the Years Ended December 31, 20Y2 and20Y1
	20Y2	20Y1
Sales	$ 1,768,425	$ 1,629,350
Cost of goods sold	613,200	564,140
Gross profit	$ 1,155,225	$ 1,065,210
Selling expenses	$ 387,380	$ 483,710
Administrative expenses	329,995	284,080
Total operating expenses	717,375	767,790
Income from operations	$ 437,850	$ 297,420
Other revenue	23,050	18,980
	$ 460,900	$ 316,400
Other expense (interest)	120,000	66,400
Income before income tax	$ 340,900	$ 250,000
Income tax expense	40,900	29,700
Net income	$ 300,000	$ 220,300

Marshall Inc.
Comparative Balance Sheet
December 31, 20Y2 and 20Y1
			Dec. 31, 20Y2	Dec. 31, 20Y1
Assets
Current assets
	Cash		$ 288,060	$ 332,730
	Marketable securities		435,980	551,390
	Accounts receivable (net)		321,200	299,300
	Inventories		248,200	189,800
	Prepaid expenses		54,496	66,550
		Total current assets	$ 1,347,936	$ 1,439,770
Long-term investments			757,994	316,868
Property, plant, and equipment (net)			1,950,000	1,755,000
Total assets			$ 4,055,930	$ 3,511,638
Liabilities
Current liabilities			$ 421,230	$ 816,338
Long-term liabilities
	Mortgage note payable, 8 %		$ 670,000	$ 0
	Bonds payable, 8 %		830,000	830,000
		Total long-term liabilities	$ 1,500,000	$ 830,000
Total liabilities			$ 1,921,230	$ 1,646,338
Stockholders’ Equity
Preferred $ 0.70 stock, $ 20 par			$ 280,000	$ 280,000
Common stock, $ 10 par			320,000	320,000
Retained earnings			1,534,700	1,265,300
Total stockholders’ equity			$ 2,134,700	$ 1,865,300
Total liabilities and stockholders’ equity			$ 4,055,930	$ 3,511,638

Required:

Determine the following measures for 20Y2, rounding to onedecimal place, except for dollar amounts, which should be roundedto the nearest cent. Use the rounded answer of the requirement forsubsequent requirement, if required. Assume 365 days a year.

1. The excess of the current assets of abusiness over its current liabilities.Working capital	$
2. A financial ratio that is computed bydividing current assets by current liabilities.Current ratio
3. A financial ratio that measures the abilityto pay current liabilities with quick assets (cash, temporaryinvestments, accounts receivable), computed as quick assets dividedby current liabilities.Quick ratio
4. The relationship between sales and accountsreceivable, computed by dividing the sales by the average netaccounts receivable; measures how frequently during the year theaccounts receivable are being converted to cash.Accounts receivableturnover
5. The relationship between sales and accountsreceivable, computed by dividing the average accounts receivable bythe average daily sales.Number of days’ sales in receivables		days
6. The relationship between the volume ofgoods sold and inventory, computed by dividing the cost of goodssold by the average inventory.Inventory turnover
7. The relationship between the volume ofsales and inventory, computed by dividing average inventory by theaverage daily cost of goods sold.Number of days’ sales ininventory		days
8. A solvency ratio that measures how muchfixed assets a company has to support its long-term debt.Ratio offixed assets to long-term liabilities
9. A comprehensive leverage ratio thatmeasures the relationship of the claims of creditors tostockholders’ equity, calculated as total liabilities divided bytotal stockholders’ equity.Ratio of liabilities to stockholders’equity
10. A ratio that measures the risk thatinterst payments will not be made if earnings decrease, calculatedas income before income tax and interest expense divided byinterest expense.Times interest earned
11. Ratio that measures how effectively abusiness uses its assets to generate revenues, computed as salesdivided by average total assets.Asset turnover
12. A measure of the profitability of assets,without regard to the equity of creditors and stockholders in theassets.Return on total assets		%
13. A measure of profitability computed bydividing net income by average stockholders’ equity.Return onstockholders’ equity		%
14. A measure of profitability computed bydividing net income, reduced by preferred dividend requirements, byaverage common stockholders’ equity.Return on common stockholders’equity		%
15. The profitability ratio of net incomeavailable to common shareholders to the number of common sharesoutstanding.Earnings per share on common stock	$
16. The ratio of the market price per share ofcommon stock, at a specific date, to the annual earnings pershare.Price-earnings ratio
17. Measures the extent to which earnings arebeing distributed to common shareholders.Dividends per share ofcommon stock	$
18. A ratio, computed by dividing the annualdividends paid per share of common stock by the market price pershare at a specific date, that indicates the rate of return tostockholders in terms of cash dividend distributions.Dividendyield		%

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Measures of liquidity, The abi

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