A46

Measures of liquidity, Solvency, and Profitability The comparative financial statements of Stargel Inc. are as follows. The market price of Stargel common stock was $119.70 on December 31, 20Y2. Stargel Inc. Comparative Retained Earnings Statement For the Years Ended December 31, 2012 and 2041 2012 2011 Retained earnings, January 1 $5,375,000 $4,545,000 Net income 900,000 925,000 Dividends: Preferred stock dividends (45,000) (50,000) $6,180,000 (45,000) (50,000) Common stock dividends Retained earnings, December 31 $5,375,000 Stargel Inc. Comparative Income Statement For the Years Ended December 31, 2012 and 2011 20Y2 2011 Sales Cost of merchandise sold $10,000,000 5,350,000 $4,650,000 $9,400,000 4,950,000 $4,450,000 Gross profit $1,880,000 Selling expenses Administrative expenses $2,000,000 1,500,000 1,410,000 Total operating expenses $3,500,000 $1,150,000 $3,290,000 $1,160,000 Income from operations Other revenue and expense: Other revenue Other expense interest) 150,000 (170,000) 140,000 (150,000) $1,150,000 225,000 Income before income tax expense $1,130,000 Income tax expense 230,000 Net income $900,000 $925,000 Stargel Inc. Comparative Balance Sheet December 31, 20Y2 and 2041 20Y2 2011 Assets Current assets: Cash $500,000 $400,000 Marketable securities 1,010,000 1,000,000 Accounts receivable (net) 740,000 510,000 Inventories 1,190,000 950,000 Prepaid expenses 250,000 229,000 Total current assets $3,690,000 $3,089,000 Long-term investments 2,350,000 2,300,000 Property, plant, and equipment (net) 3,740,000 3,366,000 Total assets $9,780,000 $8,755,000 Liabilities Current liabilities $900,000 $880,000 Long-term liabilities: Mortgage note payable, 10% $200,000 $0 Bonds payable, 10% 1,500,000 1,500,000 Total long-term liabilities $1,700,000 $1,500,000 Total liabilities $2,600,000 $2,380,000 Stockholders' Equity Preferred $0.90 stock, $10 par $500,000 $500,000 Common stock, $5 par 500,000 500,000 Retained earnings 6,180,000 5,375,000 Total stockholders' equity $7,180,000 $6,375,000 Total liabilities and stockholders' equity $9,780,000 $8,755,000 Required: Determine the following measures for 20Y2, rounding to one decimal place, except 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. 1. Working capital 2,790,000 2. Current ratio 4.1 3. Quick ratio 2.5 4. Accounts receivable tumover 5. Number of days' sales in receivables 16.0 22.8 days 5.0 6. Inventory turnover 7. Number of days' sales in inventory 73.0 days 2.2 8. Ratio of fixed assets to long-term liabilities 9. Ratio of liabilities to stockholders' equity 0.4 10. Times interest earned 7.6 11. Asset turnover 1.1 11.5 % 12. Return on total assets 13. Return on stockholders' equity 19.2 X % 14. Return on common stockholders' equity 251 X % 15. Earnings per share on common stock $ 13.6 X 16. Price-earnings ratio 8.55 x 17. Dividends per share of common stock $ 0.5 18. Dividend yield 0.4 % Feedback Check My Work 1. Subtract current liabilities from current assets. 2. Divide current assets by current liabilities, 3. Divide quick assets by current liabilities. Quick assets are cash, temporary investments, and receivables. 4. Divide sales by average accounts receivable. Average Accounts receivable = (Beginning Net Accounts Receivable + Ending Net Accounts Receivable) + 2. 5. Divide average accounts receivable by average daily sales. Average Accounts receivable = (Beginning Net Accounts Receivable + Ending Net Accounts Receivable) = 2. Average daily sales are sales divided by 365 days. 6. Divide cost of merchandise sold by average merchandise inventory. Average Inventory = (Beginning Inventories + Ending Inventories) = 2. 7. Divide average inventory by average daily cost of merchandise sold. Average Inventory = (Beginning Inventories + Ending Inventories) - 2. Average daily cost of merchandise sold is cost of merchandise sold divided by 365 days. 8. Divide property, plant, and equipment (net) by long-term liabilities. 9. Divide total liabilities by total stockholders' equity. 10. Divide the sum of income before income tax plus interest expense by interest expense. 11. Divide sales by average total assets. Average total assets = (Beginning total assets + Ending total assets) - 2. 12. Divide the sum of net income plus interest expense by average total assets. Average total assets = (Beginning total assets + Ending total assets) : 2. 13. Divide net income by average total stockholders' equity. Average total stockholders' equity = (Beginning total stockholders' equity + Ending total stockholders' equity) = 2. 14. Divide net income minus preferred dividends from the retained earnings statement by average common stockholders' equity. Common stockholders' equity - Common stock + Retained earnings. Average common stockholders' equity - (Beginning common stockholders' equity + Ending common stockholders' equity) - 2. 15. Divide net income minus preferred dividends from the retained earnings statement by common shares outstanding (common stock + par value). 16. Divide common market share price by common earnings per share (use answer from requirement 15). 17. Divide common dividends (from Retained Earnings Statement) by common shares outstanding (common stock - par value). 18. Divide common dividends per share (use answer from requirement 17) by market share price