Measures of liquidity, solvency, and profitability The comparative financial statements of Marshall Inc. are as follows. The market price of Marshall common stock was $82.60 on December 31, 20Y2. Instructions Determine the following measures for 20Y2 (round to one decimal place, including percentages, except for per-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

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Answer 1

Textbook Question

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Chapter 14, Problem 4PA

Measures of liquidity, solvency, and profitability

The comparative financial statements of Marshall Inc. are as follows. The market price of Marshall common stock was $82.60 on December 31, 20Y2.

Chapter 14, Problem 4PA, Measures of liquidity, solvency, and profitability The comparative financial statements of Marshall

Instructions

Determine the following measures for 20Y2 (round to one decimal place, including percentages, except for per-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

1 (1)

Expert Solution

To determine

Determine the working capital.

Explanation of Solution

Financial Ratios: Financial ratios are the metrics used to evaluate the capabilities, profitability, and overall performance of a company.

.Working capital

$Working capital = Current assets – Current liabilities = $2,464,000 – $880,000= $1,584,000$

Working capital is determined as the difference between current assets and current liabilities.

Formula:

$Working capital = Current assets – Current liabilities$

1(2)

Expert Solution

To determine

Determine the current ratio of M Incorporation.

Explanation of Solution

Current ratio

$Current ratio=Current assetsCurrent liabilities=$2,464,000$880,000=2.8$

Current ratio is used to determine the relationship between current assets and current liabilities. The ideal current ratio is 2:1. Current assets include cash and cash equivalents, short-term investments, net, accounts and notes receivables, net, inventories, and prepaid expenses and other current assets. Current liabilities include short-term obligations and accounts payable.

Formula:

$Current ratio=Current assetsCurrent liabilities$

1 (3)

Expert Solution

To determine

Determine the quick ratio of M Incorporation.

Explanation of Solution

.Quick ratio

$Quick ratio =Quick assets Current liabilities=$1,936,000$880,000=2.2$

Acid-Test Ratio is the ratio denotes that this ratio is a more rigorous test of solvency than the current ratio. It is determined by dividing quick assets and current liabilities. The acceptable acid-test ratio is 0.90 to 1.00. It is referred as quick ratio. Use the following formula to determine the acid-test ratio:

$Acid Ratio=Quick assetsCurrent liabilities$

1 (4)

Expert Solution

To determine

Determine accounts receivable turnover for M Incorporation.

Explanation of Solution

Accounts receivable turnover

$Accounts receivables turnover ratio}=Net credit salesAverage accounts receivables=$10,850,000$542,500=20.0$

Accounts receivables turnover ratio is mainly used to evaluate the collection process efficiency. It helps the company to know the number of times the accounts receivable is collected in a particular time period. Main purpose of accounts receivable turnover ratio is to manage the working capital of the company. This ratio is determined by dividing credit sales and sales return.

Formula:

$Accounts receivables turnover ratio}=Net credit salesAverage accounts receivables$

Average accounts receivable is determined as follows:

$Average accounts receivables }= (Opening accounts receivables + Closing accounts receivables )2=$585,000+$500,0002=$542,500$

1(5)

Expert Solution

To determine

Determine number of days’ sales in receivables of M Incorporation.

Explanation of Solution

Number of days’ sales in receivables

$Number of days’ sales in receivable }=Average accounts receivable Average daily sales=$542,50029,726.02=18.3 days$

Number of days’ sales in receivables is used to determine the number of days a particular company takes to collect accounts receivables.

Formula:

$Number of days’ sales in receivable =Average accounts receivable Average daily sales$

Average daily sales are determined by dividing sales by 365 days.

$Average daily sales = Sales365 days=$10,850,000365 days=$29,726.02$

1 (6)

Expert Solution

To determine

Determine inventory turnover ratio for M Incorporation.

Explanation of Solution

$Inventory turnover ratio =Cost of goods soldAverage inventory=$6,000,000$400,000=15.0 times$

Inventory turnover ratio is used to determine the number of times inventory used or sold during the particular accounting period.

Formula:

$Inventory turnover=Cost of goods soldAverage inventory$

Average inventory is determined as below:

$Average inventory = (Opening inventory + Closing inventory )2=$420,000+$380,0002=$400,000$

1(7)

Expert Solution

To determine

Determine number of days’ sales in inventory ratio of M Incorporation.

Explanation of Solution

Number of days sales in inventory ratio

$Number of days’ sales in inventory }=Average inventory Average daily cost of goods sold=$400,000$16,438.35=24.3 days$

Number of days’ sales in inventory is determined as the number of days a particular company takes to make sales of the inventory available with them.

Formula:

$Number of days’ sales in invenotry=Average inventory Average daily cost of goods sold$

Average daily cost of goods sold are determined by dividing cost of goods sold by 365 days. Thus, average daily cost of goods sold are determined as follows:

$Average daily cost of goods sold= Cost of goods sold365 days=$6,000,000365 days=$16,438.35$

1 (8)

Expert Solution

To determine

Determine ratio of fixed assets to long-term liabilities.

Explanation of Solution

$Ratio of fixed assets to long-term liabilities=Fixed assets Long-term liabilities =$5,760,000$3,200,000=1.8$

Ratio of fixed assets to long-term liabilities is determined by dividing fixed assets and long-term liabilities.

Formula:

$Ratio of fixed assets to long-term liabilities=Fixed assets Long-term liabilities$

1 (9)

Expert Solution

To determine

Determine ratio of liabilities to stockholders’ equity.

Explanation of Solution

Ratio of liabilities to stockholders’ equity

$Ratio of liabilities to stockholders' equity }=Total liabilitiesStockholders' equity=$4,080,000$4,944,000=0.8$

Ratio of liabilities to stockholders’ equity is determined by dividing liabilities and stockholders’ equity.

Formula:

$Ratio of liabilities to stockholders' equity=Total liabilitiesStockholders' equity$

1 (10)

Expert Solution

To determine

Determine times interest earned ratio.

Explanation of Solution

Times interest earned ratio

$Times-interest-earned ratio }=Income before income tax+Interest expenseInterest expense=$1,020,000+$132,000$132,000=8.5%$

Times interest earned ratio quantifies the number of times the earnings before interest and taxes can pay the interest expense. First, determine the sum of income before income tax and interest expense. Then, divide the sum by interest expense.

Formula:

$Times-interest-earned ratio }=Income before income tax+Interest expenseInterest expense$

1 (11)

Expert Solution

To determine

Determine asset turnover ratio.

Explanation of Solution

Asset turnover ratio

$Asset turnover ratio =SalesAverage total assets=$10,850,000$8,639,000=1.3$

Asset turnover ratio is used to determine the asset’s efficiency towards sales.

Formula: $Asset turnover =Net revenueAverage total assets$

Working notes for average total assets are as follows:

$Average total assets =Beginning total assets + Ending total assets 2=$9,024,000+$8,254,0002=$8,639,000$

1 (12)

Expert Solution

To determine

Determine return on total assets.

Explanation of Solution

Return on total assets

$Return on total assets=Net income + Interest expenseAverage total assets=$600,000+$132,000$8,639,000=8.5%$

Return on assets determines the particular company’s overall earning power. It is determined by dividing sum of net income and interest expense and average total assets.

Formula:

$Rate of return on assets=Net income + Interest expenseAverage total assets$

1 (13)

Expert Solution

To determine

Determine return on stockholders’ equity.

Explanation of Solution

Return on stockholders’ equity

$Return on stockholders' equity}= Net income Average stockholder’s equity= $600,000$4,699,000=12.8%$

Rate of return on stockholders’ equity is used to determine the relationship between the net income and the average equity that are invested in the company.

Formula: $Rate of return on stockholders' equtiy = Net incomeAverage stockholder’s equity$

Average stockholders’ equity is determined as follows:

$Average stockholders' equity =(Beginning stockholders' equity + Ending stockholders' equity 2)=$4,944,000+$4,454,0002=$4,699,000$

1 (14)

Expert Solution

To determine

Determine return on common stockholders’ equity.

Explanation of Solution

Return on common stockholders’ equity

$Return on common stockholders' equity}= Net income – Preferred dividends Average stockholder’s equity= $600,000–$10,000$4,699,000=13.3%$

Rate of return on stockholders’ equity is used to determine the relationship between the net income and the average common equity that are invested in the company.

Formula:

$Rate of return on common stockholders' equtiy = Net income – Preferred dividends Average common stockholder’s equity$

Average common stockholders’ equity is determined as follows:

$Average stockholders' equity =(Beginning common stockholders' equity + Ending common stockholders' equity 2)=$4,694,000+$4,204,0002=$4,449,000$

1(15)

Expert Solution

To determine

Determine earnings per share on common stock.

Explanation of Solution

Earnings per share on common stock

$Earnings per share=(Net income – PreferreddividendsWeighted-average common shares outstanding)=$600,000−$10,000100,000=$5.90$

A portion of profit that an individual earns from each share is referred to earnings per share.

Formula:

$Earnings per share}=Net income −Preferred dividendsWeighted average number of common shares outstanding$

1 (16)

Expert Solution

To determine

Determine price earnings ratio.

Explanation of Solution

Price earnings ratio

$Price earnings ratio =Market price per shareEarning per share=$82.60$5.90=14.0 times$

Price/earnings ratio is used to determine the profitability of a company. This ratio is abbreviated as P/E.

Formula:

$Price/earnings ratio= Market price per share of common stockEarnings per share$

17.

Expert Solution

To determine

Determine dividend per share of common stock.

Explanation of Solution

Dividend per share of common stock

$Dividend per share of common stock}= Dividend per Common stockShares of common stock × 100=$100,000100,000 shares=$1.00$

Dividend per share of commons stock is determined by dividing dividend per common stock and shares of common stock.

Formula:

$Dividend per share of common stock}= Dividend per Common stockShares of common stock × 100$

18.

Expert Solution

To determine

Determine dividend yield ratio.

Explanation of Solution

Dividend yield ratio

$Dividend yield = Annual dividend per ShareMarket price per Share × 100=$1.00$82.60=1.2%$

Dividend yield ratio is determined to evaluate the relationship between the annual dividend per share and the market price per share.

Formula:

$Dividend yield = Annual dividend per ShareMarket price per Share × 100$

Conclusion

Thus, summary table of determined ratios are below:

S.No	Particulars	Ratios
1.	Working capital	$1,584,000
2.	Current ratio	2.8
3.	Acid test ratio	2.2
4.	Accounts receivable turnover ratio	20.0
5.	Number of days’ sales in receivables	18.3
6.	Inventory turnover ratio	15.0
7.	Number of days sales in inventory	24.3
8.	Ratio of fixed assets to long-term liabilities	1.8
9.	Ratio of liabilities to stockholders’ equity	0.8
10.	Times interest earned ratio	8.7
11.	Asset turnover ratio	1.3
12.	Return on total assets	8.5%
13.	Return on stockholders’ equity	12.8%
14.	Return on common stockholders’ equity	13.3%
15.	Earnings per share	$5.90
16.	Price earnings ratio	14.0
17.	Dividend per share of common stock	$1.00
18.	Dividend yield	1.2%

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Answer 2

Textbook Question

100%

Chapter 14, Problem 4PA

Measures of liquidity, solvency, and profitability

The comparative financial statements of Marshall Inc. are as follows. The market price of Marshall common stock was $82.60 on December 31, 20Y2.

Chapter 14, Problem 4PA, Measures of liquidity, solvency, and profitability The comparative financial statements of Marshall

Instructions

Determine the following measures for 20Y2 (round to one decimal place, including percentages, except for per-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

1 (1)

Expert Solution

To determine

Determine the working capital.

Explanation of Solution

Financial Ratios: Financial ratios are the metrics used to evaluate the capabilities, profitability, and overall performance of a company.

.Working capital

$Working capital = Current assets – Current liabilities = $2,464,000 – $880,000= $1,584,000$

Working capital is determined as the difference between current assets and current liabilities.

Formula:

$Working capital = Current assets – Current liabilities$

1(2)

Expert Solution

To determine

Determine the current ratio of M Incorporation.

Explanation of Solution

Current ratio

$Current ratio=Current assetsCurrent liabilities=$2,464,000$880,000=2.8$

Current ratio is used to determine the relationship between current assets and current liabilities. The ideal current ratio is 2:1. Current assets include cash and cash equivalents, short-term investments, net, accounts and notes receivables, net, inventories, and prepaid expenses and other current assets. Current liabilities include short-term obligations and accounts payable.

Formula:

$Current ratio=Current assetsCurrent liabilities$

1 (3)

Expert Solution

To determine

Determine the quick ratio of M Incorporation.

Explanation of Solution

.Quick ratio

$Quick ratio =Quick assets Current liabilities=$1,936,000$880,000=2.2$

Acid-Test Ratio is the ratio denotes that this ratio is a more rigorous test of solvency than the current ratio. It is determined by dividing quick assets and current liabilities. The acceptable acid-test ratio is 0.90 to 1.00. It is referred as quick ratio. Use the following formula to determine the acid-test ratio:

$Acid Ratio=Quick assetsCurrent liabilities$

1 (4)

Expert Solution

To determine

Determine accounts receivable turnover for M Incorporation.

Explanation of Solution

Accounts receivable turnover

$Accounts receivables turnover ratio}=Net credit salesAverage accounts receivables=$10,850,000$542,500=20.0$

Accounts receivables turnover ratio is mainly used to evaluate the collection process efficiency. It helps the company to know the number of times the accounts receivable is collected in a particular time period. Main purpose of accounts receivable turnover ratio is to manage the working capital of the company. This ratio is determined by dividing credit sales and sales return.

Formula:

$Accounts receivables turnover ratio}=Net credit salesAverage accounts receivables$

Average accounts receivable is determined as follows:

$Average accounts receivables }= (Opening accounts receivables + Closing accounts receivables )2=$585,000+$500,0002=$542,500$

1(5)

Expert Solution

To determine

Determine number of days’ sales in receivables of M Incorporation.

Explanation of Solution

Number of days’ sales in receivables

$Number of days’ sales in receivable }=Average accounts receivable Average daily sales=$542,50029,726.02=18.3 days$

Number of days’ sales in receivables is used to determine the number of days a particular company takes to collect accounts receivables.

Formula:

$Number of days’ sales in receivable =Average accounts receivable Average daily sales$

Average daily sales are determined by dividing sales by 365 days.

$Average daily sales = Sales365 days=$10,850,000365 days=$29,726.02$

1 (6)

Expert Solution

To determine

Determine inventory turnover ratio for M Incorporation.

Explanation of Solution

$Inventory turnover ratio =Cost of goods soldAverage inventory=$6,000,000$400,000=15.0 times$

Inventory turnover ratio is used to determine the number of times inventory used or sold during the particular accounting period.

Formula:

$Inventory turnover=Cost of goods soldAverage inventory$

Average inventory is determined as below:

$Average inventory = (Opening inventory + Closing inventory )2=$420,000+$380,0002=$400,000$

1(7)

Expert Solution

To determine

Determine number of days’ sales in inventory ratio of M Incorporation.

Explanation of Solution

Number of days sales in inventory ratio

$Number of days’ sales in inventory }=Average inventory Average daily cost of goods sold=$400,000$16,438.35=24.3 days$

Number of days’ sales in inventory is determined as the number of days a particular company takes to make sales of the inventory available with them.

Formula:

$Number of days’ sales in invenotry=Average inventory Average daily cost of goods sold$

Average daily cost of goods sold are determined by dividing cost of goods sold by 365 days. Thus, average daily cost of goods sold are determined as follows:

$Average daily cost of goods sold= Cost of goods sold365 days=$6,000,000365 days=$16,438.35$

1 (8)

Expert Solution

To determine

Determine ratio of fixed assets to long-term liabilities.

Explanation of Solution

$Ratio of fixed assets to long-term liabilities=Fixed assets Long-term liabilities =$5,760,000$3,200,000=1.8$

Ratio of fixed assets to long-term liabilities is determined by dividing fixed assets and long-term liabilities.

Formula:

$Ratio of fixed assets to long-term liabilities=Fixed assets Long-term liabilities$

1 (9)

Expert Solution

To determine

Determine ratio of liabilities to stockholders’ equity.

Explanation of Solution

Ratio of liabilities to stockholders’ equity

$Ratio of liabilities to stockholders' equity }=Total liabilitiesStockholders' equity=$4,080,000$4,944,000=0.8$

Ratio of liabilities to stockholders’ equity is determined by dividing liabilities and stockholders’ equity.

Formula:

$Ratio of liabilities to stockholders' equity=Total liabilitiesStockholders' equity$

1 (10)

Expert Solution

To determine

Determine times interest earned ratio.

Explanation of Solution

Times interest earned ratio

$Times-interest-earned ratio }=Income before income tax+Interest expenseInterest expense=$1,020,000+$132,000$132,000=8.5%$

Times interest earned ratio quantifies the number of times the earnings before interest and taxes can pay the interest expense. First, determine the sum of income before income tax and interest expense. Then, divide the sum by interest expense.

Formula:

$Times-interest-earned ratio }=Income before income tax+Interest expenseInterest expense$

1 (11)

Expert Solution

To determine

Determine asset turnover ratio.

Explanation of Solution

Asset turnover ratio

$Asset turnover ratio =SalesAverage total assets=$10,850,000$8,639,000=1.3$

Asset turnover ratio is used to determine the asset’s efficiency towards sales.

Formula: $Asset turnover =Net revenueAverage total assets$

Working notes for average total assets are as follows:

$Average total assets =Beginning total assets + Ending total assets 2=$9,024,000+$8,254,0002=$8,639,000$

1 (12)

Expert Solution

To determine

Determine return on total assets.

Explanation of Solution

Return on total assets

$Return on total assets=Net income + Interest expenseAverage total assets=$600,000+$132,000$8,639,000=8.5%$

Return on assets determines the particular company’s overall earning power. It is determined by dividing sum of net income and interest expense and average total assets.

Formula:

$Rate of return on assets=Net income + Interest expenseAverage total assets$

1 (13)

Expert Solution

To determine

Determine return on stockholders’ equity.

Explanation of Solution

Return on stockholders’ equity

$Return on stockholders' equity}= Net income Average stockholder’s equity= $600,000$4,699,000=12.8%$

Rate of return on stockholders’ equity is used to determine the relationship between the net income and the average equity that are invested in the company.

Formula: $Rate of return on stockholders' equtiy = Net incomeAverage stockholder’s equity$

Average stockholders’ equity is determined as follows:

$Average stockholders' equity =(Beginning stockholders' equity + Ending stockholders' equity 2)=$4,944,000+$4,454,0002=$4,699,000$

1 (14)

Expert Solution

To determine

Determine return on common stockholders’ equity.

Explanation of Solution

Return on common stockholders’ equity

$Return on common stockholders' equity}= Net income – Preferred dividends Average stockholder’s equity= $600,000–$10,000$4,699,000=13.3%$

Rate of return on stockholders’ equity is used to determine the relationship between the net income and the average common equity that are invested in the company.

Formula:

$Rate of return on common stockholders' equtiy = Net income – Preferred dividends Average common stockholder’s equity$

Average common stockholders’ equity is determined as follows:

$Average stockholders' equity =(Beginning common stockholders' equity + Ending common stockholders' equity 2)=$4,694,000+$4,204,0002=$4,449,000$

1(15)

Expert Solution

To determine

Determine earnings per share on common stock.

Explanation of Solution

Earnings per share on common stock

$Earnings per share=(Net income – PreferreddividendsWeighted-average common shares outstanding)=$600,000−$10,000100,000=$5.90$

A portion of profit that an individual earns from each share is referred to earnings per share.

Formula:

$Earnings per share}=Net income −Preferred dividendsWeighted average number of common shares outstanding$

1 (16)

Expert Solution

To determine

Determine price earnings ratio.

Explanation of Solution

Price earnings ratio

$Price earnings ratio =Market price per shareEarning per share=$82.60$5.90=14.0 times$

Price/earnings ratio is used to determine the profitability of a company. This ratio is abbreviated as P/E.

Formula:

$Price/earnings ratio= Market price per share of common stockEarnings per share$

17.

Expert Solution

To determine

Determine dividend per share of common stock.

Explanation of Solution

Dividend per share of common stock

$Dividend per share of common stock}= Dividend per Common stockShares of common stock × 100=$100,000100,000 shares=$1.00$

Dividend per share of commons stock is determined by dividing dividend per common stock and shares of common stock.

Formula:

$Dividend per share of common stock}= Dividend per Common stockShares of common stock × 100$

18.

Expert Solution

To determine

Determine dividend yield ratio.

Explanation of Solution

Dividend yield ratio

$Dividend yield = Annual dividend per ShareMarket price per Share × 100=$1.00$82.60=1.2%$

Dividend yield ratio is determined to evaluate the relationship between the annual dividend per share and the market price per share.

Formula:

$Dividend yield = Annual dividend per ShareMarket price per Share × 100$

Conclusion

Thus, summary table of determined ratios are below:

S.No	Particulars	Ratios
1.	Working capital	$1,584,000
2.	Current ratio	2.8
3.	Acid test ratio	2.2
4.	Accounts receivable turnover ratio	20.0
5.	Number of days’ sales in receivables	18.3
6.	Inventory turnover ratio	15.0
7.	Number of days sales in inventory	24.3
8.	Ratio of fixed assets to long-term liabilities	1.8
9.	Ratio of liabilities to stockholders’ equity	0.8
10.	Times interest earned ratio	8.7
11.	Asset turnover ratio	1.3
12.	Return on total assets	8.5%
13.	Return on stockholders’ equity	12.8%
14.	Return on common stockholders’ equity	13.3%
15.	Earnings per share	$5.90
16.	Price earnings ratio	14.0
17.	Dividend per share of common stock	$1.00
18.	Dividend yield	1.2%

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Answer 3

Textbook Question

100%

Chapter 14, Problem 4PA

Measures of liquidity, solvency, and profitability

The comparative financial statements of Marshall Inc. are as follows. The market price of Marshall common stock was $82.60 on December 31, 20Y2.

Chapter 14, Problem 4PA, Measures of liquidity, solvency, and profitability The comparative financial statements of Marshall

Instructions

Determine the following measures for 20Y2 (round to one decimal place, including percentages, except for per-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

1 (1)

Expert Solution

To determine

Determine the working capital.

Explanation of Solution

Financial Ratios: Financial ratios are the metrics used to evaluate the capabilities, profitability, and overall performance of a company.

.Working capital

$Working capital = Current assets – Current liabilities = $2,464,000 – $880,000= $1,584,000$

Working capital is determined as the difference between current assets and current liabilities.

Formula:

$Working capital = Current assets – Current liabilities$

1(2)

Expert Solution

To determine

Determine the current ratio of M Incorporation.

Explanation of Solution

Current ratio

$Current ratio=Current assetsCurrent liabilities=$2,464,000$880,000=2.8$

Current ratio is used to determine the relationship between current assets and current liabilities. The ideal current ratio is 2:1. Current assets include cash and cash equivalents, short-term investments, net, accounts and notes receivables, net, inventories, and prepaid expenses and other current assets. Current liabilities include short-term obligations and accounts payable.

Formula:

$Current ratio=Current assetsCurrent liabilities$

1 (3)

Expert Solution

To determine

Determine the quick ratio of M Incorporation.

Explanation of Solution

.Quick ratio

$Quick ratio =Quick assets Current liabilities=$1,936,000$880,000=2.2$

Acid-Test Ratio is the ratio denotes that this ratio is a more rigorous test of solvency than the current ratio. It is determined by dividing quick assets and current liabilities. The acceptable acid-test ratio is 0.90 to 1.00. It is referred as quick ratio. Use the following formula to determine the acid-test ratio:

$Acid Ratio=Quick assetsCurrent liabilities$

1 (4)

Expert Solution

To determine

Determine accounts receivable turnover for M Incorporation.

Explanation of Solution

Accounts receivable turnover

$Accounts receivables turnover ratio}=Net credit salesAverage accounts receivables=$10,850,000$542,500=20.0$

Accounts receivables turnover ratio is mainly used to evaluate the collection process efficiency. It helps the company to know the number of times the accounts receivable is collected in a particular time period. Main purpose of accounts receivable turnover ratio is to manage the working capital of the company. This ratio is determined by dividing credit sales and sales return.

Formula:

$Accounts receivables turnover ratio}=Net credit salesAverage accounts receivables$

Average accounts receivable is determined as follows:

$Average accounts receivables }= (Opening accounts receivables + Closing accounts receivables )2=$585,000+$500,0002=$542,500$

1(5)

Expert Solution

To determine

Determine number of days’ sales in receivables of M Incorporation.

Explanation of Solution

Number of days’ sales in receivables

$Number of days’ sales in receivable }=Average accounts receivable Average daily sales=$542,50029,726.02=18.3 days$

Number of days’ sales in receivables is used to determine the number of days a particular company takes to collect accounts receivables.

Formula:

$Number of days’ sales in receivable =Average accounts receivable Average daily sales$

Average daily sales are determined by dividing sales by 365 days.

$Average daily sales = Sales365 days=$10,850,000365 days=$29,726.02$

1 (6)

Expert Solution

To determine

Determine inventory turnover ratio for M Incorporation.

Explanation of Solution

$Inventory turnover ratio =Cost of goods soldAverage inventory=$6,000,000$400,000=15.0 times$

Inventory turnover ratio is used to determine the number of times inventory used or sold during the particular accounting period.

Formula:

$Inventory turnover=Cost of goods soldAverage inventory$

Average inventory is determined as below:

$Average inventory = (Opening inventory + Closing inventory )2=$420,000+$380,0002=$400,000$

1(7)

Expert Solution

To determine

Determine number of days’ sales in inventory ratio of M Incorporation.

Explanation of Solution

Number of days sales in inventory ratio

$Number of days’ sales in inventory }=Average inventory Average daily cost of goods sold=$400,000$16,438.35=24.3 days$

Number of days’ sales in inventory is determined as the number of days a particular company takes to make sales of the inventory available with them.

Formula:

$Number of days’ sales in invenotry=Average inventory Average daily cost of goods sold$

Average daily cost of goods sold are determined by dividing cost of goods sold by 365 days. Thus, average daily cost of goods sold are determined as follows:

$Average daily cost of goods sold= Cost of goods sold365 days=$6,000,000365 days=$16,438.35$

1 (8)

Expert Solution

To determine

Determine ratio of fixed assets to long-term liabilities.

Explanation of Solution

$Ratio of fixed assets to long-term liabilities=Fixed assets Long-term liabilities =$5,760,000$3,200,000=1.8$

Ratio of fixed assets to long-term liabilities is determined by dividing fixed assets and long-term liabilities.

Formula:

$Ratio of fixed assets to long-term liabilities=Fixed assets Long-term liabilities$

1 (9)

Expert Solution

To determine

Determine ratio of liabilities to stockholders’ equity.

Explanation of Solution

Ratio of liabilities to stockholders’ equity

$Ratio of liabilities to stockholders' equity }=Total liabilitiesStockholders' equity=$4,080,000$4,944,000=0.8$

Ratio of liabilities to stockholders’ equity is determined by dividing liabilities and stockholders’ equity.

Formula:

$Ratio of liabilities to stockholders' equity=Total liabilitiesStockholders' equity$

1 (10)

Expert Solution

To determine

Determine times interest earned ratio.

Explanation of Solution

Times interest earned ratio

$Times-interest-earned ratio }=Income before income tax+Interest expenseInterest expense=$1,020,000+$132,000$132,000=8.5%$

Times interest earned ratio quantifies the number of times the earnings before interest and taxes can pay the interest expense. First, determine the sum of income before income tax and interest expense. Then, divide the sum by interest expense.

Formula:

$Times-interest-earned ratio }=Income before income tax+Interest expenseInterest expense$

1 (11)

Expert Solution

To determine

Determine asset turnover ratio.

Explanation of Solution

Asset turnover ratio

$Asset turnover ratio =SalesAverage total assets=$10,850,000$8,639,000=1.3$

Asset turnover ratio is used to determine the asset’s efficiency towards sales.

Formula: $Asset turnover =Net revenueAverage total assets$

Working notes for average total assets are as follows:

$Average total assets =Beginning total assets + Ending total assets 2=$9,024,000+$8,254,0002=$8,639,000$

1 (12)

Expert Solution

To determine

Determine return on total assets.

Explanation of Solution

Return on total assets

$Return on total assets=Net income + Interest expenseAverage total assets=$600,000+$132,000$8,639,000=8.5%$

Return on assets determines the particular company’s overall earning power. It is determined by dividing sum of net income and interest expense and average total assets.

Formula:

$Rate of return on assets=Net income + Interest expenseAverage total assets$

1 (13)

Expert Solution

To determine

Determine return on stockholders’ equity.

Explanation of Solution

Return on stockholders’ equity

$Return on stockholders' equity}= Net income Average stockholder’s equity= $600,000$4,699,000=12.8%$

Rate of return on stockholders’ equity is used to determine the relationship between the net income and the average equity that are invested in the company.

Formula: $Rate of return on stockholders' equtiy = Net incomeAverage stockholder’s equity$

Average stockholders’ equity is determined as follows:

$Average stockholders' equity =(Beginning stockholders' equity + Ending stockholders' equity 2)=$4,944,000+$4,454,0002=$4,699,000$

1 (14)

Expert Solution

To determine

Determine return on common stockholders’ equity.

Explanation of Solution

Return on common stockholders’ equity

$Return on common stockholders' equity}= Net income – Preferred dividends Average stockholder’s equity= $600,000–$10,000$4,699,000=13.3%$

Rate of return on stockholders’ equity is used to determine the relationship between the net income and the average common equity that are invested in the company.

Formula:

$Rate of return on common stockholders' equtiy = Net income – Preferred dividends Average common stockholder’s equity$

Average common stockholders’ equity is determined as follows:

$Average stockholders' equity =(Beginning common stockholders' equity + Ending common stockholders' equity 2)=$4,694,000+$4,204,0002=$4,449,000$

1(15)

Expert Solution

To determine

Determine earnings per share on common stock.

Explanation of Solution

Earnings per share on common stock

$Earnings per share=(Net income – PreferreddividendsWeighted-average common shares outstanding)=$600,000−$10,000100,000=$5.90$

A portion of profit that an individual earns from each share is referred to earnings per share.

Formula:

$Earnings per share}=Net income −Preferred dividendsWeighted average number of common shares outstanding$

1 (16)

Expert Solution

To determine

Determine price earnings ratio.

Explanation of Solution

Price earnings ratio

$Price earnings ratio =Market price per shareEarning per share=$82.60$5.90=14.0 times$

Price/earnings ratio is used to determine the profitability of a company. This ratio is abbreviated as P/E.

Formula:

$Price/earnings ratio= Market price per share of common stockEarnings per share$

17.

Expert Solution

To determine

Determine dividend per share of common stock.

Explanation of Solution

Dividend per share of common stock

$Dividend per share of common stock}= Dividend per Common stockShares of common stock × 100=$100,000100,000 shares=$1.00$

Dividend per share of commons stock is determined by dividing dividend per common stock and shares of common stock.

Formula:

$Dividend per share of common stock}= Dividend per Common stockShares of common stock × 100$

18.

Expert Solution

To determine

Determine dividend yield ratio.

Explanation of Solution

Dividend yield ratio

$Dividend yield = Annual dividend per ShareMarket price per Share × 100=$1.00$82.60=1.2%$

Dividend yield ratio is determined to evaluate the relationship between the annual dividend per share and the market price per share.

Formula:

$Dividend yield = Annual dividend per ShareMarket price per Share × 100$

Conclusion

Thus, summary table of determined ratios are below:

S.No	Particulars	Ratios
1.	Working capital	$1,584,000
2.	Current ratio	2.8
3.	Acid test ratio	2.2
4.	Accounts receivable turnover ratio	20.0
5.	Number of days’ sales in receivables	18.3
6.	Inventory turnover ratio	15.0
7.	Number of days sales in inventory	24.3
8.	Ratio of fixed assets to long-term liabilities	1.8
9.	Ratio of liabilities to stockholders’ equity	0.8
10.	Times interest earned ratio	8.7
11.	Asset turnover ratio	1.3
12.	Return on total assets	8.5%
13.	Return on stockholders’ equity	12.8%
14.	Return on common stockholders’ equity	13.3%
15.	Earnings per share	$5.90
16.	Price earnings ratio	14.0
17.	Dividend per share of common stock	$1.00
18.	Dividend yield	1.2%

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Answer 4

Textbook Question

100%

Chapter 14, Problem 4PA

Measures of liquidity, solvency, and profitability

The comparative financial statements of Marshall Inc. are as follows. The market price of Marshall common stock was $82.60 on December 31, 20Y2.

Chapter 14, Problem 4PA, Measures of liquidity, solvency, and profitability The comparative financial statements of Marshall

Instructions

Determine the following measures for 20Y2 (round to one decimal place, including percentages, except for per-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

1 (1)

Expert Solution

To determine

Determine the working capital.

Explanation of Solution

Financial Ratios: Financial ratios are the metrics used to evaluate the capabilities, profitability, and overall performance of a company.

.Working capital

$Working capital = Current assets – Current liabilities = $2,464,000 – $880,000= $1,584,000$

Working capital is determined as the difference between current assets and current liabilities.

Formula:

$Working capital = Current assets – Current liabilities$

1(2)

Expert Solution

To determine

Determine the current ratio of M Incorporation.

Explanation of Solution

Current ratio

$Current ratio=Current assetsCurrent liabilities=$2,464,000$880,000=2.8$

Current ratio is used to determine the relationship between current assets and current liabilities. The ideal current ratio is 2:1. Current assets include cash and cash equivalents, short-term investments, net, accounts and notes receivables, net, inventories, and prepaid expenses and other current assets. Current liabilities include short-term obligations and accounts payable.

Formula:

$Current ratio=Current assetsCurrent liabilities$

1 (3)

Expert Solution

To determine

Determine the quick ratio of M Incorporation.

Explanation of Solution

.Quick ratio

$Quick ratio =Quick assets Current liabilities=$1,936,000$880,000=2.2$

Acid-Test Ratio is the ratio denotes that this ratio is a more rigorous test of solvency than the current ratio. It is determined by dividing quick assets and current liabilities. The acceptable acid-test ratio is 0.90 to 1.00. It is referred as quick ratio. Use the following formula to determine the acid-test ratio:

$Acid Ratio=Quick assetsCurrent liabilities$

1 (4)

Expert Solution

To determine

Determine accounts receivable turnover for M Incorporation.

Explanation of Solution

Accounts receivable turnover

$Accounts receivables turnover ratio}=Net credit salesAverage accounts receivables=$10,850,000$542,500=20.0$

Accounts receivables turnover ratio is mainly used to evaluate the collection process efficiency. It helps the company to know the number of times the accounts receivable is collected in a particular time period. Main purpose of accounts receivable turnover ratio is to manage the working capital of the company. This ratio is determined by dividing credit sales and sales return.

Formula:

$Accounts receivables turnover ratio}=Net credit salesAverage accounts receivables$

Average accounts receivable is determined as follows:

$Average accounts receivables }= (Opening accounts receivables + Closing accounts receivables )2=$585,000+$500,0002=$542,500$

1(5)

Expert Solution

To determine

Determine number of days’ sales in receivables of M Incorporation.

Explanation of Solution

Number of days’ sales in receivables

$Number of days’ sales in receivable }=Average accounts receivable Average daily sales=$542,50029,726.02=18.3 days$

Number of days’ sales in receivables is used to determine the number of days a particular company takes to collect accounts receivables.

Formula:

$Number of days’ sales in receivable =Average accounts receivable Average daily sales$

Average daily sales are determined by dividing sales by 365 days.

$Average daily sales = Sales365 days=$10,850,000365 days=$29,726.02$

1 (6)

Expert Solution

To determine

Determine inventory turnover ratio for M Incorporation.

Explanation of Solution

$Inventory turnover ratio =Cost of goods soldAverage inventory=$6,000,000$400,000=15.0 times$

Inventory turnover ratio is used to determine the number of times inventory used or sold during the particular accounting period.

Formula:

$Inventory turnover=Cost of goods soldAverage inventory$

Average inventory is determined as below:

$Average inventory = (Opening inventory + Closing inventory )2=$420,000+$380,0002=$400,000$

1(7)

Expert Solution

To determine

Determine number of days’ sales in inventory ratio of M Incorporation.

Explanation of Solution

Number of days sales in inventory ratio

$Number of days’ sales in inventory }=Average inventory Average daily cost of goods sold=$400,000$16,438.35=24.3 days$

Number of days’ sales in inventory is determined as the number of days a particular company takes to make sales of the inventory available with them.

Formula:

$Number of days’ sales in invenotry=Average inventory Average daily cost of goods sold$

Average daily cost of goods sold are determined by dividing cost of goods sold by 365 days. Thus, average daily cost of goods sold are determined as follows:

$Average daily cost of goods sold= Cost of goods sold365 days=$6,000,000365 days=$16,438.35$

1 (8)

Expert Solution

To determine

Determine ratio of fixed assets to long-term liabilities.

Explanation of Solution

$Ratio of fixed assets to long-term liabilities=Fixed assets Long-term liabilities =$5,760,000$3,200,000=1.8$

Ratio of fixed assets to long-term liabilities is determined by dividing fixed assets and long-term liabilities.

Formula:

$Ratio of fixed assets to long-term liabilities=Fixed assets Long-term liabilities$

1 (9)

Expert Solution

To determine

Determine ratio of liabilities to stockholders’ equity.

Explanation of Solution

Ratio of liabilities to stockholders’ equity

$Ratio of liabilities to stockholders' equity }=Total liabilitiesStockholders' equity=$4,080,000$4,944,000=0.8$

Ratio of liabilities to stockholders’ equity is determined by dividing liabilities and stockholders’ equity.

Formula:

$Ratio of liabilities to stockholders' equity=Total liabilitiesStockholders' equity$

1 (10)

Expert Solution

To determine

Determine times interest earned ratio.

Explanation of Solution

Times interest earned ratio

$Times-interest-earned ratio }=Income before income tax+Interest expenseInterest expense=$1,020,000+$132,000$132,000=8.5%$

Times interest earned ratio quantifies the number of times the earnings before interest and taxes can pay the interest expense. First, determine the sum of income before income tax and interest expense. Then, divide the sum by interest expense.

Formula:

$Times-interest-earned ratio }=Income before income tax+Interest expenseInterest expense$

1 (11)

Expert Solution

To determine

Determine asset turnover ratio.

Explanation of Solution

Asset turnover ratio

$Asset turnover ratio =SalesAverage total assets=$10,850,000$8,639,000=1.3$

Asset turnover ratio is used to determine the asset’s efficiency towards sales.

Formula: $Asset turnover =Net revenueAverage total assets$

Working notes for average total assets are as follows:

$Average total assets =Beginning total assets + Ending total assets 2=$9,024,000+$8,254,0002=$8,639,000$

1 (12)

Expert Solution

To determine

Determine return on total assets.

Explanation of Solution

Return on total assets

$Return on total assets=Net income + Interest expenseAverage total assets=$600,000+$132,000$8,639,000=8.5%$

Return on assets determines the particular company’s overall earning power. It is determined by dividing sum of net income and interest expense and average total assets.

Formula:

$Rate of return on assets=Net income + Interest expenseAverage total assets$

1 (13)

Expert Solution

To determine

Determine return on stockholders’ equity.

Explanation of Solution

Return on stockholders’ equity

$Return on stockholders' equity}= Net income Average stockholder’s equity= $600,000$4,699,000=12.8%$

Rate of return on stockholders’ equity is used to determine the relationship between the net income and the average equity that are invested in the company.

Formula: $Rate of return on stockholders' equtiy = Net incomeAverage stockholder’s equity$

Average stockholders’ equity is determined as follows:

$Average stockholders' equity =(Beginning stockholders' equity + Ending stockholders' equity 2)=$4,944,000+$4,454,0002=$4,699,000$

1 (14)

Expert Solution

To determine

Determine return on common stockholders’ equity.

Explanation of Solution

Return on common stockholders’ equity

$Return on common stockholders' equity}= Net income – Preferred dividends Average stockholder’s equity= $600,000–$10,000$4,699,000=13.3%$

Rate of return on stockholders’ equity is used to determine the relationship between the net income and the average common equity that are invested in the company.

Formula:

$Rate of return on common stockholders' equtiy = Net income – Preferred dividends Average common stockholder’s equity$

Average common stockholders’ equity is determined as follows:

$Average stockholders' equity =(Beginning common stockholders' equity + Ending common stockholders' equity 2)=$4,694,000+$4,204,0002=$4,449,000$

1(15)

Expert Solution

To determine

Determine earnings per share on common stock.

Explanation of Solution

Earnings per share on common stock

$Earnings per share=(Net income – PreferreddividendsWeighted-average common shares outstanding)=$600,000−$10,000100,000=$5.90$

A portion of profit that an individual earns from each share is referred to earnings per share.

Formula:

$Earnings per share}=Net income −Preferred dividendsWeighted average number of common shares outstanding$

1 (16)

Expert Solution

To determine

Determine price earnings ratio.

Explanation of Solution

Price earnings ratio

$Price earnings ratio =Market price per shareEarning per share=$82.60$5.90=14.0 times$

Price/earnings ratio is used to determine the profitability of a company. This ratio is abbreviated as P/E.

Formula:

$Price/earnings ratio= Market price per share of common stockEarnings per share$

17.

Expert Solution

To determine

Determine dividend per share of common stock.

Explanation of Solution

Dividend per share of common stock

$Dividend per share of common stock}= Dividend per Common stockShares of common stock × 100=$100,000100,000 shares=$1.00$

Dividend per share of commons stock is determined by dividing dividend per common stock and shares of common stock.

Formula:

$Dividend per share of common stock}= Dividend per Common stockShares of common stock × 100$

18.

Expert Solution

To determine

Determine dividend yield ratio.

Explanation of Solution

Dividend yield ratio

$Dividend yield = Annual dividend per ShareMarket price per Share × 100=$1.00$82.60=1.2%$

Dividend yield ratio is determined to evaluate the relationship between the annual dividend per share and the market price per share.

Formula:

$Dividend yield = Annual dividend per ShareMarket price per Share × 100$

Conclusion

Thus, summary table of determined ratios are below:

S.No	Particulars	Ratios
1.	Working capital	$1,584,000
2.	Current ratio	2.8
3.	Acid test ratio	2.2
4.	Accounts receivable turnover ratio	20.0
5.	Number of days’ sales in receivables	18.3
6.	Inventory turnover ratio	15.0
7.	Number of days sales in inventory	24.3
8.	Ratio of fixed assets to long-term liabilities	1.8
9.	Ratio of liabilities to stockholders’ equity	0.8
10.	Times interest earned ratio	8.7
11.	Asset turnover ratio	1.3
12.	Return on total assets	8.5%
13.	Return on stockholders’ equity	12.8%
14.	Return on common stockholders’ equity	13.3%
15.	Earnings per share	$5.90
16.	Price earnings ratio	14.0
17.	Dividend per share of common stock	$1.00
18.	Dividend yield	1.2%

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Answer 5

Textbook Question

100%

Answer 6

Textbook Question

100%

Answer 7

1 (1)

Expert Solution

To determine

Determine the working capital.

Explanation of Solution

Financial Ratios: Financial ratios are the metrics used to evaluate the capabilities, profitability, and overall performance of a company.

.Working capital

$Working capital = Current assets – Current liabilities = $2,464,000 – $880,000= $1,584,000$

Working capital is determined as the difference between current assets and current liabilities.

Formula:

$Working capital = Current assets – Current liabilities$

1(2)

Expert Solution

To determine

Determine the current ratio of M Incorporation.

Explanation of Solution

Current ratio

$Current ratio=Current assetsCurrent liabilities=$2,464,000$880,000=2.8$

Current ratio is used to determine the relationship between current assets and current liabilities. The ideal current ratio is 2:1. Current assets include cash and cash equivalents, short-term investments, net, accounts and notes receivables, net, inventories, and prepaid expenses and other current assets. Current liabilities include short-term obligations and accounts payable.

Formula:

$Current ratio=Current assetsCurrent liabilities$

1 (3)

Expert Solution

To determine

Determine the quick ratio of M Incorporation.

Explanation of Solution

.Quick ratio

$Quick ratio =Quick assets Current liabilities=$1,936,000$880,000=2.2$

Acid-Test Ratio is the ratio denotes that this ratio is a more rigorous test of solvency than the current ratio. It is determined by dividing quick assets and current liabilities. The acceptable acid-test ratio is 0.90 to 1.00. It is referred as quick ratio. Use the following formula to determine the acid-test ratio:

$Acid Ratio=Quick assetsCurrent liabilities$

1 (4)

Expert Solution

To determine

Determine accounts receivable turnover for M Incorporation.

Explanation of Solution

Accounts receivable turnover

$Accounts receivables turnover ratio}=Net credit salesAverage accounts receivables=$10,850,000$542,500=20.0$

Accounts receivables turnover ratio is mainly used to evaluate the collection process efficiency. It helps the company to know the number of times the accounts receivable is collected in a particular time period. Main purpose of accounts receivable turnover ratio is to manage the working capital of the company. This ratio is determined by dividing credit sales and sales return.

Formula:

$Accounts receivables turnover ratio}=Net credit salesAverage accounts receivables$

Average accounts receivable is determined as follows:

$Average accounts receivables }= (Opening accounts receivables + Closing accounts receivables )2=$585,000+$500,0002=$542,500$

1(5)

Expert Solution

To determine

Determine number of days’ sales in receivables of M Incorporation.

Explanation of Solution

Number of days’ sales in receivables

$Number of days’ sales in receivable }=Average accounts receivable Average daily sales=$542,50029,726.02=18.3 days$

Number of days’ sales in receivables is used to determine the number of days a particular company takes to collect accounts receivables.

Formula:

$Number of days’ sales in receivable =Average accounts receivable Average daily sales$

Average daily sales are determined by dividing sales by 365 days.

$Average daily sales = Sales365 days=$10,850,000365 days=$29,726.02$

1 (6)

Expert Solution

To determine

Determine inventory turnover ratio for M Incorporation.

Explanation of Solution

$Inventory turnover ratio =Cost of goods soldAverage inventory=$6,000,000$400,000=15.0 times$

Inventory turnover ratio is used to determine the number of times inventory used or sold during the particular accounting period.

Formula:

$Inventory turnover=Cost of goods soldAverage inventory$

Average inventory is determined as below:

$Average inventory = (Opening inventory + Closing inventory )2=$420,000+$380,0002=$400,000$

1(7)

Expert Solution

To determine

Determine number of days’ sales in inventory ratio of M Incorporation.

Explanation of Solution

Number of days sales in inventory ratio

$Number of days’ sales in inventory }=Average inventory Average daily cost of goods sold=$400,000$16,438.35=24.3 days$

Number of days’ sales in inventory is determined as the number of days a particular company takes to make sales of the inventory available with them.

Formula:

$Number of days’ sales in invenotry=Average inventory Average daily cost of goods sold$

Average daily cost of goods sold are determined by dividing cost of goods sold by 365 days. Thus, average daily cost of goods sold are determined as follows:

$Average daily cost of goods sold= Cost of goods sold365 days=$6,000,000365 days=$16,438.35$

1 (8)

Expert Solution

To determine

Determine ratio of fixed assets to long-term liabilities.

Explanation of Solution

$Ratio of fixed assets to long-term liabilities=Fixed assets Long-term liabilities =$5,760,000$3,200,000=1.8$

Ratio of fixed assets to long-term liabilities is determined by dividing fixed assets and long-term liabilities.

Formula:

$Ratio of fixed assets to long-term liabilities=Fixed assets Long-term liabilities$

1 (9)

Expert Solution

To determine

Determine ratio of liabilities to stockholders’ equity.

Explanation of Solution

Ratio of liabilities to stockholders’ equity

$Ratio of liabilities to stockholders' equity }=Total liabilitiesStockholders' equity=$4,080,000$4,944,000=0.8$

Ratio of liabilities to stockholders’ equity is determined by dividing liabilities and stockholders’ equity.

Formula:

$Ratio of liabilities to stockholders' equity=Total liabilitiesStockholders' equity$

1 (10)

Expert Solution

To determine

Determine times interest earned ratio.

Explanation of Solution

Times interest earned ratio

$Times-interest-earned ratio }=Income before income tax+Interest expenseInterest expense=$1,020,000+$132,000$132,000=8.5%$

Times interest earned ratio quantifies the number of times the earnings before interest and taxes can pay the interest expense. First, determine the sum of income before income tax and interest expense. Then, divide the sum by interest expense.

Formula:

$Times-interest-earned ratio }=Income before income tax+Interest expenseInterest expense$

1 (11)

Expert Solution

To determine

Determine asset turnover ratio.

Explanation of Solution

Asset turnover ratio

$Asset turnover ratio =SalesAverage total assets=$10,850,000$8,639,000=1.3$

Asset turnover ratio is used to determine the asset’s efficiency towards sales.

Formula: $Asset turnover =Net revenueAverage total assets$

Working notes for average total assets are as follows:

$Average total assets =Beginning total assets + Ending total assets 2=$9,024,000+$8,254,0002=$8,639,000$

1 (12)

Expert Solution

To determine

Determine return on total assets.

Explanation of Solution

Return on total assets

$Return on total assets=Net income + Interest expenseAverage total assets=$600,000+$132,000$8,639,000=8.5%$

Return on assets determines the particular company’s overall earning power. It is determined by dividing sum of net income and interest expense and average total assets.

Formula:

$Rate of return on assets=Net income + Interest expenseAverage total assets$

1 (13)

Expert Solution

To determine

Determine return on stockholders’ equity.

Explanation of Solution

Return on stockholders’ equity

$Return on stockholders' equity}= Net income Average stockholder’s equity= $600,000$4,699,000=12.8%$

Rate of return on stockholders’ equity is used to determine the relationship between the net income and the average equity that are invested in the company.

Formula: $Rate of return on stockholders' equtiy = Net incomeAverage stockholder’s equity$

Average stockholders’ equity is determined as follows:

$Average stockholders' equity =(Beginning stockholders' equity + Ending stockholders' equity 2)=$4,944,000+$4,454,0002=$4,699,000$

1 (14)

Expert Solution

To determine

Determine return on common stockholders’ equity.

Explanation of Solution

Return on common stockholders’ equity

$Return on common stockholders' equity}= Net income – Preferred dividends Average stockholder’s equity= $600,000–$10,000$4,699,000=13.3%$

Rate of return on stockholders’ equity is used to determine the relationship between the net income and the average common equity that are invested in the company.

Formula:

$Rate of return on common stockholders' equtiy = Net income – Preferred dividends Average common stockholder’s equity$

Average common stockholders’ equity is determined as follows:

$Average stockholders' equity =(Beginning common stockholders' equity + Ending common stockholders' equity 2)=$4,694,000+$4,204,0002=$4,449,000$

1(15)

Expert Solution

To determine

Determine earnings per share on common stock.

Explanation of Solution

Earnings per share on common stock

$Earnings per share=(Net income – PreferreddividendsWeighted-average common shares outstanding)=$600,000−$10,000100,000=$5.90$

A portion of profit that an individual earns from each share is referred to earnings per share.

Formula:

$Earnings per share}=Net income −Preferred dividendsWeighted average number of common shares outstanding$

1 (16)

Expert Solution

To determine

Determine price earnings ratio.

Explanation of Solution

Price earnings ratio

$Price earnings ratio =Market price per shareEarning per share=$82.60$5.90=14.0 times$

Price/earnings ratio is used to determine the profitability of a company. This ratio is abbreviated as P/E.

Formula:

$Price/earnings ratio= Market price per share of common stockEarnings per share$

17.

Expert Solution

To determine

Determine dividend per share of common stock.

Explanation of Solution

Dividend per share of common stock

$Dividend per share of common stock}= Dividend per Common stockShares of common stock × 100=$100,000100,000 shares=$1.00$

Dividend per share of commons stock is determined by dividing dividend per common stock and shares of common stock.

Formula:

$Dividend per share of common stock}= Dividend per Common stockShares of common stock × 100$

18.

Expert Solution

To determine

Determine dividend yield ratio.

Explanation of Solution

Dividend yield ratio

$Dividend yield = Annual dividend per ShareMarket price per Share × 100=$1.00$82.60=1.2%$

Dividend yield ratio is determined to evaluate the relationship between the annual dividend per share and the market price per share.

Formula:

$Dividend yield = Annual dividend per ShareMarket price per Share × 100$

Conclusion

Thus, summary table of determined ratios are below:

S.No	Particulars	Ratios
1.	Working capital	$1,584,000
2.	Current ratio	2.8
3.	Acid test ratio	2.2
4.	Accounts receivable turnover ratio	20.0
5.	Number of days’ sales in receivables	18.3
6.	Inventory turnover ratio	15.0
7.	Number of days sales in inventory	24.3
8.	Ratio of fixed assets to long-term liabilities	1.8
9.	Ratio of liabilities to stockholders’ equity	0.8
10.	Times interest earned ratio	8.7
11.	Asset turnover ratio	1.3
12.	Return on total assets	8.5%
13.	Return on stockholders’ equity	12.8%
14.	Return on common stockholders’ equity	13.3%
15.	Earnings per share	$5.90
16.	Price earnings ratio	14.0
17.	Dividend per share of common stock	$1.00
18.	Dividend yield	1.2%

Answer 8

1 (1)

Expert Solution

To determine

Determine the working capital.

Explanation of Solution

Financial Ratios: Financial ratios are the metrics used to evaluate the capabilities, profitability, and overall performance of a company.

.Working capital

$Working capital = Current assets – Current liabilities = $2,464,000 – $880,000= $1,584,000$

Working capital is determined as the difference between current assets and current liabilities.

Formula:

$Working capital = Current assets – Current liabilities$

Answer 9

1 (1)

Expert Solution

Answer 10

1 (1)

Expert Solution

Answer 11

Expert Solution

Answer 12

To determine

Determine the working capital.

Answer 13

Explanation of Solution

Financial Ratios: Financial ratios are the metrics used to evaluate the capabilities, profitability, and overall performance of a company.

.Working capital

$Working capital = Current assets – Current liabilities = $2,464,000 – $880,000= $1,584,000$

Working capital is determined as the difference between current assets and current liabilities.

Formula:

$Working capital = Current assets – Current liabilities$

Answer 14

1(2)

Expert Solution

To determine

Determine the current ratio of M Incorporation.

Explanation of Solution

Current ratio

$Current ratio=Current assetsCurrent liabilities=$2,464,000$880,000=2.8$

Current ratio is used to determine the relationship between current assets and current liabilities. The ideal current ratio is 2:1. Current assets include cash and cash equivalents, short-term investments, net, accounts and notes receivables, net, inventories, and prepaid expenses and other current assets. Current liabilities include short-term obligations and accounts payable.

Formula:

$Current ratio=Current assetsCurrent liabilities$

Answer 15

1(2)

Expert Solution

Answer 16

1(2)

Expert Solution

Answer 17

Expert Solution

Answer 18

To determine

Determine the current ratio of M Incorporation.

Answer 19

Explanation of Solution

Current ratio

$Current ratio=Current assetsCurrent liabilities=$2,464,000$880,000=2.8$

Current ratio is used to determine the relationship between current assets and current liabilities. The ideal current ratio is 2:1. Current assets include cash and cash equivalents, short-term investments, net, accounts and notes receivables, net, inventories, and prepaid expenses and other current assets. Current liabilities include short-term obligations and accounts payable.

Formula:

$Current ratio=Current assetsCurrent liabilities$

Answer 20

1 (3)

Expert Solution

To determine

Determine the quick ratio of M Incorporation.

Explanation of Solution

.Quick ratio

$Quick ratio =Quick assets Current liabilities=$1,936,000$880,000=2.2$

Acid-Test Ratio is the ratio denotes that this ratio is a more rigorous test of solvency than the current ratio. It is determined by dividing quick assets and current liabilities. The acceptable acid-test ratio is 0.90 to 1.00. It is referred as quick ratio. Use the following formula to determine the acid-test ratio:

$Acid Ratio=Quick assetsCurrent liabilities$

Answer 21

1 (3)

Expert Solution

Answer 22

1 (3)

Expert Solution

Answer 23

Expert Solution

Answer 24

To determine

Determine the quick ratio of M Incorporation.

Answer 25

Explanation of Solution

.Quick ratio

$Quick ratio =Quick assets Current liabilities=$1,936,000$880,000=2.2$

Acid-Test Ratio is the ratio denotes that this ratio is a more rigorous test of solvency than the current ratio. It is determined by dividing quick assets and current liabilities. The acceptable acid-test ratio is 0.90 to 1.00. It is referred as quick ratio. Use the following formula to determine the acid-test ratio:

$Acid Ratio=Quick assetsCurrent liabilities$

Answer 26

1 (4)

Expert Solution

To determine

Determine accounts receivable turnover for M Incorporation.

Explanation of Solution

Accounts receivable turnover

$Accounts receivables turnover ratio}=Net credit salesAverage accounts receivables=$10,850,000$542,500=20.0$

Accounts receivables turnover ratio is mainly used to evaluate the collection process efficiency. It helps the company to know the number of times the accounts receivable is collected in a particular time period. Main purpose of accounts receivable turnover ratio is to manage the working capital of the company. This ratio is determined by dividing credit sales and sales return.

Formula:

$Accounts receivables turnover ratio}=Net credit salesAverage accounts receivables$

Average accounts receivable is determined as follows:

$Average accounts receivables }= (Opening accounts receivables + Closing accounts receivables )2=$585,000+$500,0002=$542,500$

Answer 27

1 (4)

Expert Solution

Answer 28

1 (4)

Expert Solution

Answer 29

Expert Solution

Answer 30

To determine

Determine accounts receivable turnover for M Incorporation.

Answer 31

Explanation of Solution

Accounts receivable turnover

$Accounts receivables turnover ratio}=Net credit salesAverage accounts receivables=$10,850,000$542,500=20.0$

Accounts receivables turnover ratio is mainly used to evaluate the collection process efficiency. It helps the company to know the number of times the accounts receivable is collected in a particular time period. Main purpose of accounts receivable turnover ratio is to manage the working capital of the company. This ratio is determined by dividing credit sales and sales return.

Formula:

$Accounts receivables turnover ratio}=Net credit salesAverage accounts receivables$

Average accounts receivable is determined as follows:

$Average accounts receivables }= (Opening accounts receivables + Closing accounts receivables )2=$585,000+$500,0002=$542,500$

Answer 32

1(5)

Expert Solution

To determine

Determine number of days’ sales in receivables of M Incorporation.

Explanation of Solution

Number of days’ sales in receivables

$Number of days’ sales in receivable }=Average accounts receivable Average daily sales=$542,50029,726.02=18.3 days$

Number of days’ sales in receivables is used to determine the number of days a particular company takes to collect accounts receivables.

Formula:

$Number of days’ sales in receivable =Average accounts receivable Average daily sales$

Average daily sales are determined by dividing sales by 365 days.

$Average daily sales = Sales365 days=$10,850,000365 days=$29,726.02$

Answer 33

1(5)

Expert Solution

Answer 34

1(5)

Expert Solution

Answer 35

Expert Solution

Answer 36

To determine

Determine number of days’ sales in receivables of M Incorporation.

Answer 37

Explanation of Solution

Number of days’ sales in receivables

$Number of days’ sales in receivable }=Average accounts receivable Average daily sales=$542,50029,726.02=18.3 days$

Number of days’ sales in receivables is used to determine the number of days a particular company takes to collect accounts receivables.

Formula:

$Number of days’ sales in receivable =Average accounts receivable Average daily sales$

Average daily sales are determined by dividing sales by 365 days.

$Average daily sales = Sales365 days=$10,850,000365 days=$29,726.02$

Answer 38

1 (6)

Expert Solution

To determine

Determine inventory turnover ratio for M Incorporation.

Explanation of Solution

$Inventory turnover ratio =Cost of goods soldAverage inventory=$6,000,000$400,000=15.0 times$

Inventory turnover ratio is used to determine the number of times inventory used or sold during the particular accounting period.

Formula:

$Inventory turnover=Cost of goods soldAverage inventory$

Average inventory is determined as below:

$Average inventory = (Opening inventory + Closing inventory )2=$420,000+$380,0002=$400,000$

Answer 39

1 (6)

Expert Solution

Answer 40

1 (6)

Expert Solution

Answer 41

Expert Solution

Answer 42

To determine

Determine inventory turnover ratio for M Incorporation.

Answer 43

Explanation of Solution

$Inventory turnover ratio =Cost of goods soldAverage inventory=$6,000,000$400,000=15.0 times$

Inventory turnover ratio is used to determine the number of times inventory used or sold during the particular accounting period.

Formula:

$Inventory turnover=Cost of goods soldAverage inventory$

Average inventory is determined as below:

$Average inventory = (Opening inventory + Closing inventory )2=$420,000+$380,0002=$400,000$

Answer 44

1(7)

Expert Solution

To determine

Determine number of days’ sales in inventory ratio of M Incorporation.

Explanation of Solution

Number of days sales in inventory ratio

$Number of days’ sales in inventory }=Average inventory Average daily cost of goods sold=$400,000$16,438.35=24.3 days$

Number of days’ sales in inventory is determined as the number of days a particular company takes to make sales of the inventory available with them.

Formula:

$Number of days’ sales in invenotry=Average inventory Average daily cost of goods sold$

Average daily cost of goods sold are determined by dividing cost of goods sold by 365 days. Thus, average daily cost of goods sold are determined as follows:

$Average daily cost of goods sold= Cost of goods sold365 days=$6,000,000365 days=$16,438.35$

Answer 45

1(7)

Expert Solution

Answer 46

1(7)

Expert Solution

Answer 47

Expert Solution

Answer 48

To determine

Determine number of days’ sales in inventory ratio of M Incorporation.

Answer 49

Explanation of Solution

Number of days sales in inventory ratio

$Number of days’ sales in inventory }=Average inventory Average daily cost of goods sold=$400,000$16,438.35=24.3 days$

Number of days’ sales in inventory is determined as the number of days a particular company takes to make sales of the inventory available with them.

Formula:

$Number of days’ sales in invenotry=Average inventory Average daily cost of goods sold$

Average daily cost of goods sold are determined by dividing cost of goods sold by 365 days. Thus, average daily cost of goods sold are determined as follows:

$Average daily cost of goods sold= Cost of goods sold365 days=$6,000,000365 days=$16,438.35$

Answer 50

1 (8)

Expert Solution

To determine

Determine ratio of fixed assets to long-term liabilities.

Explanation of Solution

$Ratio of fixed assets to long-term liabilities=Fixed assets Long-term liabilities =$5,760,000$3,200,000=1.8$

Ratio of fixed assets to long-term liabilities is determined by dividing fixed assets and long-term liabilities.

Formula:

$Ratio of fixed assets to long-term liabilities=Fixed assets Long-term liabilities$

Answer 51

1 (8)

Expert Solution

Answer 52

1 (8)

Expert Solution

Answer 53

Expert Solution

Answer 54

To determine

Determine ratio of fixed assets to long-term liabilities.

Answer 55

Explanation of Solution

$Ratio of fixed assets to long-term liabilities=Fixed assets Long-term liabilities =$5,760,000$3,200,000=1.8$

Ratio of fixed assets to long-term liabilities is determined by dividing fixed assets and long-term liabilities.

Formula:

$Ratio of fixed assets to long-term liabilities=Fixed assets Long-term liabilities$

Answer 56

1 (9)

Expert Solution

To determine

Determine ratio of liabilities to stockholders’ equity.

Explanation of Solution

Ratio of liabilities to stockholders’ equity

$Ratio of liabilities to stockholders' equity }=Total liabilitiesStockholders' equity=$4,080,000$4,944,000=0.8$

Ratio of liabilities to stockholders’ equity is determined by dividing liabilities and stockholders’ equity.

Formula:

$Ratio of liabilities to stockholders' equity=Total liabilitiesStockholders' equity$

Answer 57

1 (9)

Expert Solution

Answer 58

1 (9)

Expert Solution

Answer 59

Expert Solution

Answer 60

To determine

Determine ratio of liabilities to stockholders’ equity.

Answer 61

Explanation of Solution

Ratio of liabilities to stockholders’ equity

$Ratio of liabilities to stockholders' equity }=Total liabilitiesStockholders' equity=$4,080,000$4,944,000=0.8$

Ratio of liabilities to stockholders’ equity is determined by dividing liabilities and stockholders’ equity.

Formula:

$Ratio of liabilities to stockholders' equity=Total liabilitiesStockholders' equity$

Answer 62

1 (10)

Expert Solution

To determine

Determine times interest earned ratio.

Explanation of Solution

Times interest earned ratio

$Times-interest-earned ratio }=Income before income tax+Interest expenseInterest expense=$1,020,000+$132,000$132,000=8.5%$

Times interest earned ratio quantifies the number of times the earnings before interest and taxes can pay the interest expense. First, determine the sum of income before income tax and interest expense. Then, divide the sum by interest expense.

Formula:

$Times-interest-earned ratio }=Income before income tax+Interest expenseInterest expense$

Answer 63

1 (10)

Expert Solution

Answer 64

1 (10)

Expert Solution

Answer 65

Expert Solution

Answer 66

To determine

Determine times interest earned ratio.

Answer 67

Explanation of Solution

Times interest earned ratio

$Times-interest-earned ratio }=Income before income tax+Interest expenseInterest expense=$1,020,000+$132,000$132,000=8.5%$

Times interest earned ratio quantifies the number of times the earnings before interest and taxes can pay the interest expense. First, determine the sum of income before income tax and interest expense. Then, divide the sum by interest expense.

Formula:

$Times-interest-earned ratio }=Income before income tax+Interest expenseInterest expense$

Answer 68

1 (11)

Expert Solution

To determine

Determine asset turnover ratio.

Explanation of Solution

Asset turnover ratio

$Asset turnover ratio =SalesAverage total assets=$10,850,000$8,639,000=1.3$

Asset turnover ratio is used to determine the asset’s efficiency towards sales.

Formula: $Asset turnover =Net revenueAverage total assets$

Working notes for average total assets are as follows:

$Average total assets =Beginning total assets + Ending total assets 2=$9,024,000+$8,254,0002=$8,639,000$

Answer 69

1 (11)

Expert Solution

Answer 70

1 (11)

Expert Solution

Answer 71

Expert Solution

Answer 72

To determine

Determine asset turnover ratio.

Answer 73

Explanation of Solution

Asset turnover ratio

$Asset turnover ratio =SalesAverage total assets=$10,850,000$8,639,000=1.3$

Asset turnover ratio is used to determine the asset’s efficiency towards sales.

Formula: $Asset turnover =Net revenueAverage total assets$

Working notes for average total assets are as follows:

$Average total assets =Beginning total assets + Ending total assets 2=$9,024,000+$8,254,0002=$8,639,000$

Answer 74

1 (12)

Expert Solution

To determine

Determine return on total assets.

Explanation of Solution

Return on total assets

$Return on total assets=Net income + Interest expenseAverage total assets=$600,000+$132,000$8,639,000=8.5%$

Return on assets determines the particular company’s overall earning power. It is determined by dividing sum of net income and interest expense and average total assets.

Formula:

$Rate of return on assets=Net income + Interest expenseAverage total assets$

Answer 75

1 (12)

Expert Solution

Answer 76

1 (12)

Expert Solution

Answer 77

Expert Solution

Answer 78

To determine

Determine return on total assets.

Answer 79

Explanation of Solution

Return on total assets

$Return on total assets=Net income + Interest expenseAverage total assets=$600,000+$132,000$8,639,000=8.5%$

Return on assets determines the particular company’s overall earning power. It is determined by dividing sum of net income and interest expense and average total assets.

Formula:

$Rate of return on assets=Net income + Interest expenseAverage total assets$

Answer 80

1 (13)

Expert Solution

To determine

Determine return on stockholders’ equity.

Explanation of Solution

Return on stockholders’ equity

$Return on stockholders' equity}= Net income Average stockholder’s equity= $600,000$4,699,000=12.8%$

Rate of return on stockholders’ equity is used to determine the relationship between the net income and the average equity that are invested in the company.

Formula: $Rate of return on stockholders' equtiy = Net incomeAverage stockholder’s equity$

Average stockholders’ equity is determined as follows:

$Average stockholders' equity =(Beginning stockholders' equity + Ending stockholders' equity 2)=$4,944,000+$4,454,0002=$4,699,000$

Answer 81

1 (13)

Expert Solution

Answer 82

1 (13)

Expert Solution

Answer 83

Expert Solution

Answer 84

To determine

Determine return on stockholders’ equity.

Answer 85

Explanation of Solution

Return on stockholders’ equity

$Return on stockholders' equity}= Net income Average stockholder’s equity= $600,000$4,699,000=12.8%$

Rate of return on stockholders’ equity is used to determine the relationship between the net income and the average equity that are invested in the company.

Formula: $Rate of return on stockholders' equtiy = Net incomeAverage stockholder’s equity$

Average stockholders’ equity is determined as follows:

$Average stockholders' equity =(Beginning stockholders' equity + Ending stockholders' equity 2)=$4,944,000+$4,454,0002=$4,699,000$

Answer 86

1 (14)

Expert Solution

To determine

Determine return on common stockholders’ equity.

Explanation of Solution

Return on common stockholders’ equity

$Return on common stockholders' equity}= Net income – Preferred dividends Average stockholder’s equity= $600,000–$10,000$4,699,000=13.3%$

Rate of return on stockholders’ equity is used to determine the relationship between the net income and the average common equity that are invested in the company.

Formula:

$Rate of return on common stockholders' equtiy = Net income – Preferred dividends Average common stockholder’s equity$

Average common stockholders’ equity is determined as follows:

$Average stockholders' equity =(Beginning common stockholders' equity + Ending common stockholders' equity 2)=$4,694,000+$4,204,0002=$4,449,000$

Answer 87

1 (14)

Expert Solution

Answer 88

1 (14)

Expert Solution

Answer 89

Expert Solution

Answer 90

To determine

Determine return on common stockholders’ equity.

Answer 91

Explanation of Solution

Return on common stockholders’ equity

$Return on common stockholders' equity}= Net income – Preferred dividends Average stockholder’s equity= $600,000–$10,000$4,699,000=13.3%$

Rate of return on stockholders’ equity is used to determine the relationship between the net income and the average common equity that are invested in the company.

Formula:

$Rate of return on common stockholders' equtiy = Net income – Preferred dividends Average common stockholder’s equity$

Average common stockholders’ equity is determined as follows:

$Average stockholders' equity =(Beginning common stockholders' equity + Ending common stockholders' equity 2)=$4,694,000+$4,204,0002=$4,449,000$

Answer 92

1(15)

Expert Solution

To determine

Determine earnings per share on common stock.

Explanation of Solution

Earnings per share on common stock

$Earnings per share=(Net income – PreferreddividendsWeighted-average common shares outstanding)=$600,000−$10,000100,000=$5.90$

A portion of profit that an individual earns from each share is referred to earnings per share.

Formula:

$Earnings per share}=Net income −Preferred dividendsWeighted average number of common shares outstanding$

Answer 93

1(15)

Expert Solution

Answer 94

1(15)

Expert Solution

Answer 95

Expert Solution

Answer 96

To determine

Determine earnings per share on common stock.

Answer 97

Explanation of Solution

Earnings per share on common stock

$Earnings per share=(Net income – PreferreddividendsWeighted-average common shares outstanding)=$600,000−$10,000100,000=$5.90$

A portion of profit that an individual earns from each share is referred to earnings per share.

Formula:

$Earnings per share}=Net income −Preferred dividendsWeighted average number of common shares outstanding$

Answer 98

1 (16)

Expert Solution

To determine

Determine price earnings ratio.

Explanation of Solution

Price earnings ratio

$Price earnings ratio =Market price per shareEarning per share=$82.60$5.90=14.0 times$

Price/earnings ratio is used to determine the profitability of a company. This ratio is abbreviated as P/E.

Formula:

$Price/earnings ratio= Market price per share of common stockEarnings per share$

Answer 99

1 (16)

Expert Solution

Answer 100

1 (16)

Expert Solution

Answer 101

Expert Solution

Answer 102

To determine

Determine price earnings ratio.

Answer 103

Explanation of Solution

Price earnings ratio

$Price earnings ratio =Market price per shareEarning per share=$82.60$5.90=14.0 times$

Price/earnings ratio is used to determine the profitability of a company. This ratio is abbreviated as P/E.

Formula:

$Price/earnings ratio= Market price per share of common stockEarnings per share$

Answer 104

17.

Expert Solution

To determine

Determine dividend per share of common stock.

Explanation of Solution

Dividend per share of common stock

$Dividend per share of common stock}= Dividend per Common stockShares of common stock × 100=$100,000100,000 shares=$1.00$

Dividend per share of commons stock is determined by dividing dividend per common stock and shares of common stock.

Formula:

$Dividend per share of common stock}= Dividend per Common stockShares of common stock × 100$

Answer 105

17.

Expert Solution

Answer 106

17.

Expert Solution

Answer 107

Expert Solution

Answer 108

To determine

Determine dividend per share of common stock.

Answer 109

Explanation of Solution

Dividend per share of common stock

$Dividend per share of common stock}= Dividend per Common stockShares of common stock × 100=$100,000100,000 shares=$1.00$

Dividend per share of commons stock is determined by dividing dividend per common stock and shares of common stock.

Formula:

$Dividend per share of common stock}= Dividend per Common stockShares of common stock × 100$

Answer 110

18.

Expert Solution

To determine

Determine dividend yield ratio.

Explanation of Solution

Dividend yield ratio

$Dividend yield = Annual dividend per ShareMarket price per Share × 100=$1.00$82.60=1.2%$

Dividend yield ratio is determined to evaluate the relationship between the annual dividend per share and the market price per share.

Formula:

$Dividend yield = Annual dividend per ShareMarket price per Share × 100$

Conclusion

Thus, summary table of determined ratios are below:

S.No	Particulars	Ratios
1.	Working capital	$1,584,000
2.	Current ratio	2.8
3.	Acid test ratio	2.2
4.	Accounts receivable turnover ratio	20.0
5.	Number of days’ sales in receivables	18.3
6.	Inventory turnover ratio	15.0
7.	Number of days sales in inventory	24.3
8.	Ratio of fixed assets to long-term liabilities	1.8
9.	Ratio of liabilities to stockholders’ equity	0.8
10.	Times interest earned ratio	8.7
11.	Asset turnover ratio	1.3
12.	Return on total assets	8.5%
13.	Return on stockholders’ equity	12.8%
14.	Return on common stockholders’ equity	13.3%
15.	Earnings per share	$5.90
16.	Price earnings ratio	14.0
17.	Dividend per share of common stock	$1.00
18.	Dividend yield	1.2%

Answer 111

18.

Expert Solution

Answer 112

18.

Expert Solution

Answer 113

Expert Solution

Answer 114

To determine

Determine dividend yield ratio.

Answer 115

Explanation of Solution

Dividend yield ratio

$Dividend yield = Annual dividend per ShareMarket price per Share × 100=$1.00$82.60=1.2%$

Dividend yield ratio is determined to evaluate the relationship between the annual dividend per share and the market price per share.

Formula:

$Dividend yield = Annual dividend per ShareMarket price per Share × 100$

Answer 116

Conclusion

Thus, summary table of determined ratios are below:

S.No	Particulars	Ratios
1.	Working capital	$1,584,000
2.	Current ratio	2.8
3.	Acid test ratio	2.2
4.	Accounts receivable turnover ratio	20.0
5.	Number of days’ sales in receivables	18.3
6.	Inventory turnover ratio	15.0
7.	Number of days sales in inventory	24.3
8.	Ratio of fixed assets to long-term liabilities	1.8
9.	Ratio of liabilities to stockholders’ equity	0.8
10.	Times interest earned ratio	8.7
11.	Asset turnover ratio	1.3
12.	Return on total assets	8.5%
13.	Return on stockholders’ equity	12.8%
14.	Return on common stockholders’ equity	13.3%
15.	Earnings per share	$5.90
16.	Price earnings ratio	14.0
17.	Dividend per share of common stock	$1.00
18.	Dividend yield	1.2%