Chapter 14 Homework

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Nineteen Measures of The ability of a firm to pay its debts as they come due.Solvency and The ability of a firm to earn income.Profitability

The comparative financial statements of Blige Inc. are as follows. The market price of Blige Inc. common stock was $58 on December 31, 2016.

Blige Inc.
Comparative Retained Earnings Statement
For the Years Ended December 31, 2016 and 2015
			2016		2015
Retained earnings, January 1			$4,517,950		$3,801,250
Add net income for year			966,000		778,600
Total			$5,483,950		$4,579,850
Deduct dividends
	On preferred stock		$13,300		$13,300
	On common stock		48,600		48,600
		Total	$61,900		$61,900
Retained earnings, December 31			$5,422,050		$4,517,950

Blige Inc.
Comparative Income Statement
For the Years Ended December 31, 2016 and 2015
	2016		2015
Sales	$6,404,030		$5,891,700
Sales returns and allowances	31,860		20,710
Sales	$6,372,170		$5,870,990
Cost of goods sold	2,105,320		1,936,890
Gross profit	$4,266,850		$3,934,100
Selling expenses	$1,531,680		$1,821,260
Administrative expenses	1,304,760		1,069,630
Total operating expenses	2,836,440		2,890,890
Income from operations	$1,430,410		$1,043,210
Other income	75,290		66,590
	$1,505,700		$1,109,800
Other expense (interest)	408,000		224,800
Income before income tax	$1,097,700		$885,000
Income tax expense	131,700		106,400
Net income	$966,000		$778,600

Blige Inc.
Comparative Balance Sheet
December 31, 2016 and 2015
			Dec. 31, 2016		Dec. 31, 2015
Assets
Current assets
	Cash		$1,229,990		$854,930
	Temporary investments		1,861,600		1,416,750
	Accounts receivable (net)		1,131,500		1,065,800
	Inventories		846,800		657,000
	Prepaid expenses		232,699		170,990
		Total current assets	$5,302,589		$4,165,470
Long-term investments			3,246,306		945,219
Property, plant, and equipment (net)			5,610,000		5,049,000
Total assets			$14,158,895		$10,159,689
Liabilities
Current liabilities			$1,606,845		$801,739
Long-term liabilities
	Mortgage note payable, 8%, due 2021		$2,290,000		$0
	Bonds payable, 8%, due 2017		2,810,000		2,810,000
		Total long-term liabilities	$5,100,000		$2,810,000
Total liabilities			$6,706,845		$3,611,739
Stockholders' Equity
Preferred $0.7 stock, $50 par			$950,000		$950,000
Common stock, $10 par			1,080,000		1,080,000
Retained earnings			5,422,050		4,517,950
	Total stockholders' equity		$7,452,050		$6,547,950
Total liabilities and stockholders' equity			$14,158,895		$10,159,689

Required:

Determine the following measures for 2016, 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.

1. The excess of the current assets of a business over its current liabilities.Working capital	$
2. A financial ratio that is computed by dividing current assets by current liabilities.Current ratio
3. A financial ratio that measures the ability to pay current liabilities with quick assets (cash, marketable securities, accounts receivable).Quick ratio
4. The relationship between sales and accounts receivable, computed by dividing the sales by the average net accounts receivable; measures how frequently during the year the accounts receivable are being converted to cash.Accounts receivable turnover
5. The relationship between sales and accounts receivable, computed by dividing the average accounts receivable by the average daily sales.Number of days' sales in receivables		days
6. The relationship between the volume of goods sold and inventory, computed by dividing the cost of goods sold by the average inventory.Inventory turnover
7. The relationship between the volume of sales and inventory, computed by dividing average inventory by the average daily cost of goods sold.Number of days' sales in inventory		days
8. The ratio of fixed assets to long-term liabilities provides a measure of whether note-holders or bondholders will be paid.Ratio of fixed assets to long-term liabilities
9. The ratio of liabilities to stockholders' equity measures how much of the company is financed by debt and equity.Ratio of liabilities to stockholders' equity
10. A ratio that measures creditor margin of safety for interest payments, calculated as income before income tax + interest expense divided by interest expense.Number of times interest charges are earned
11. A ratio that measures the risk that preferred dividends will not be paid if earnings decrease, calculated by dividing net income by the amount of preferred dividends.Number of times preferred dividends are earned
12. Ratio that measures how effectively a company uses its assets, computed as sales divided by average total assets.Ratio of sales to assets
13. A measure of profitability of assets, without regard to the portion of assets financed by creditors or stockholders.Rate earned on total assets		%
14. A measure of profitability computed by dividing net income by average stockholders' equity.Rate earned on stockholders' equity		%
15. A measure of profitability computed by dividing net income, reduced by preferred dividend requirements, by average common stockholders' equity.Rate earned on common stockholders' equity		%
16. The profitability ratio of net income available to common shareholders to the number of common shares outstanding.Earnings per share on common stock	$
17. The ratio of the market price per share of common stock, at a specific date, to the annual earnings per share.Price-earnings ratio
18. Measures the extent to which earnings are being distributed to common shareholders.Dividends per share of common stock	$
19. A ratio, computed by dividing the annual dividends paid per share of common stock by the market price per share at a specific date, that indicates the rate of return to stockholders in terms of cash dividend distributions.Dividend yield		%

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