Question
Twenty metrics of liquidity, The ability of a firm to pay its debts as they come due.Solvency, and The ability of a firm to earn
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Twenty metrics of liquidity, 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 Automotive Solutions Inc. are as follows. The market price of Automotive Solutions Inc. common stock was $69 on December 31, 20Y8.
AUTOMOTIVE SOLUTIONS INC. Comparative Income Statement For the Years Ended December 31, 20Y8 and 20Y7 20Y8 20Y7 Sales $3,994,560 $3,680,420 Cost of goods sold (1,423,500) (1,309,620) Gross profit $2,571,060 $2,370,800 Selling expenses $(886,200) $(1,106,070) Administrative expenses (754,910) (649,590) Total operating expenses (1,641,110) (1,755,660) Operating income $929,950 $615,140 Other revenue and expense: Other income 48,950 39,260 Other expense (interest) (288,000) (158,400) Income before income tax $690,900 $496,000 Income tax expense (82,900) (59,100) Net income $608,000 $436,900 AUTOMOTIVE SOLUTIONS INC. Comparative Statement of Stockholders Equity For the Years Ended December 31, 20Y8 and 20Y7 20Y8 20Y7 Preferred Stock Common Stock Retained Earnings Preferred Stock Common Stock Retained Earnings Balances, Jan. 1 $550,000 $630,000 $2,534,025 $550,000 $630,000 $2,133,175 Net income 608,000 436,900 Dividends: Preferred stock (7,700) (7,700) Common stock (28,350) (28,350) Balances, Dec. 31 $550,000 $630,000 $3,105,975 $550,000 $630,000 $2,534,025 AUTOMOTIVE SOLUTIONS INC. Comparative Balance Sheet December 31, 20Y8 and 20Y7 Dec. 31, 20Y8 Dec. 31, 20Y7 Assets Current assets: Cash $893,620 $603,410 Temporary investments 1,352,510 999,930 Accounts receivable (net) 722,700 678,900 Inventories 540,200 408,800 Prepaid expenses 169,061 120,680 Total current assets $3,678,091 $2,811,720 Long-term investments 1,002,457 158,139 Property, plant, and equipment (net) 4,320,000 3,888,000 Total assets $9,000,548 $6,857,859 Liabilities Current liabilities $1,114,573 $1,163,834 Long-term liabilities: Mortgage note payable, 8%, due in 15 years $1,620,000 $0 Bonds payable, 8%, due in 20 years 1,980,000 1,980,000 Total long-term liabilities $3,600,000 $1,980,000 Total liabilities $4,714,573 $3,143,834 Stockholders' Equity Preferred $0.70 stock, $50 par $550,000 $550,000 Common stock, $10 par 630,000 630,000 Retained earnings 3,105,975 2,534,025 Total stockholders' equity $4,285,975 $3,714,025 Total liabilities and stockholders' equity $9,000,548 $6,857,859 Instructions:
Determine the following measures for 20Y8. Round ratio values to one decimal place and dollar amounts to the nearest cent. For number of days' sales in receivables and number of days' sales in inventory, round intermediate calculations to the nearest whole dollar and final amounts to one decimal place. Assume there are 365 days in the 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 net sales and accounts receivable, computed by dividing the net 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.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.Days' sales in inventory days 8. Debt ratio % 9. A comprehensive leverage ratio that measures the relationship of the claims of creditors to stockholders' equity.Ratio of liabilities to stockholders' equity 10. A leverage ratio that measures the margin of safety of long-term creditors, calculated as the net fixed assets divided by the long-term liabilities.Ratio of fixed assets to long-term liabilities 11. A ratio that measures creditor margin of safety for interest payments, calculated as income before taxes plus interest expense divided by interest expense.Times interest earned times 12. 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.Times preferred dividends earned times 13. Ratio that measures how effectively a company uses its assets, computed as net sales divided by average total assets.Asset turnover 14. A measure of the profitability of assets, without regard to the equity of creditors and stockholders in the assets.Return on total assets % 15. A measure of profitability computed by dividing net income by average total stockholders' equity.Return on stockholders equity % 16. A measure of profitability computed by dividing net income, reduced by preferred dividend requirements, by common stockholders' equity.Return on common stockholders equity % 17. The profitability ratio of net income available to common shareholders to the number of common shares outstanding.Earnings per share on common stock $ 18. The ratio of the market price per share of common stock, at a specific date, to the annual earnings per share.Price-earnings ratio 19. Measures the extent to which earnings are being distributed to common shareholders.Dividends per share of common stock $ 20. 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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