Nineteen Measures of Solvency and Profitability The comparative financial statem
ID: 2498081 • Letter: N
Question
Nineteen Measures of Solvency and Profitability
The comparative financial statements of Blige Inc. are as follows. The market price of Blige Inc. common stock was $62 on December 31, 2014.
Required:
Determine the following measures for 2014, 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.
Hide Feedback
Partially Correct
Check My Work Feedback
1. Subtract current liabilities from current assets.
2. Divide current assets by current liabilities.
3. Divide quick assets by current liabilities. Quick assets are cash, temporary investments, and receivables.
4. Divide net sales by average accounts receivable. Average Accounts receivable = (Beginning Net Accounts Receivable + Ending Net Accounts Receivable) ÷ 2.
5. Divide average accounts receivable by average daily sales. Average Accounts receivable = (Beginning Net Accounts Receivable + Ending Net Accounts Receivable) ÷ 2. Average daily sales are net sales divided by 365 days.
6. Divide cost of goods sold by average inventory. Average Inventory = (Beginning Inventories + Ending Inventories) ÷ 2.
7. Divide average inventory by average daily cost of goods sold. Average Inventory = (Beginning Inventories + Ending Inventories) ÷ 2. Average daily cost of goods sold are cost of goods sold divided by 365 days.
8. Divide property, plant and equipment (net) by long-term liabilities.
9. Divide total liabilities by total stockholders' equity.
10. Divide the sum of income before income tax plus interest expense by interest expense.
11. Divide net income by preferred dividends from the retained earnings statement.
12. Divide net sales by average total assets, excluding long-term investments. Average total assets = (Beginning total assets + Ending total assets) ÷ 2.
13. Divide the sum of net income plus interest expense by average total assets. Average total assets = (Beginning total assets + Ending total assets) ÷ 2.
14. Divide net income by average total stockholders' equity. Average total stockholders' equity = (Beginning total stockholders' equity + Ending total stockholders' equity) ÷ 2.
15. Divide net income minus preferred dividends from the retained earnings statement by average common stockholders' equity. Common stockholders' equity = Common stock + Retained earnings. Average common stockholders' equity = (Beginning common stockholders' equity + Ending common stockholders' equity) ÷ 2.
16. Divide net income minus preferred dividends from the retained earnings statement by common shares outstanding (common stock ÷ par value).
17. Divide common market share price by common earnings per share (use answer from requirement 16).
18. Divide common dividends (from Retained Earnings Statement) by common shares outstanding (common stock ÷ par value).
19. Divide common dividends per share (use answer from requirement 18) by market share price.
Learning Objective 2, Learning Objective 3.
Hint(s)
Check My Work (1 remaining)
Icon Key
Problem 17-4 (Algorithmic)
Cengage Learning
Cengage Technical Support
Nineteen Measures of Solvency and Profitability
The comparative financial statements of Blige Inc. are as follows. The market price of Blige Inc. common stock was $62 on December 31, 2014.
Blige Inc. Comparative Retained Earnings Statement For the Years Ended December 31, 2014 and 2013 2014 2013 Retained earnings, January 1 $2,232,775 $1,898,625 Add net income for year 469,200 388,900 Total $2,701,975 $2,287,525 Deduct dividends On preferred stock $6,300 $6,300 On common stock 48,450 48,450 Total $54,750 $54,750 Retained earnings, December 31 $2,647,225 $2,232,775 Blige Inc. Comparative Income Statement For the Years Ended December 31, 2014 and 2013 2014 2013 Sales $2,892,050 $2,660,700 Sales returns and allowances 14,390 9,350 Net sales $2,877,660 $2,651,350 Cost of goods sold 1,168,000 1,074,560 Gross profit $1,709,660 $1,576,790 Selling expenses $547,080 $666,240 Administrative expenses 466,040 391,290 Total operating expenses 1,013,120 1,057,530 Income from operations $696,540 $519,260 Other income 36,660 33,140 $733,200 $552,400 Other expense (interest) 200,000 110,400 Income before income tax $533,200 $442,000 Income tax expense 64,000 53,100 Net income $469,200 $388,900 Blige Inc. Comparative Balance Sheet December 31, 2014 and 2013 Dec. 31, 2014 Dec. 31, 2013 Assets Current assets Cash $447,170 $392,760 Temporary investments 676,790 650,850 Accounts receivable (net) 547,500 518,300 Inventories 408,800 321,200 Prepaid expenses 84,599 78,550 Total current assets $2,164,859 $1,961,660 Long-term investments 1,938,869 347,873 Property, plant, and equipment (net) 2,750,000 2,475,000 Total assets $6,853,728 $4,784,533 Liabilities Current liabilities $746,503 $211,758 Long-term liabilities Mortgage note payable, 8%, due 2019 $1,120,000 $0 Bonds payable, 8%, due 2015 1,380,000 1,380,000 Total long-term liabilities $2,500,000 $1,380,000 Total liabilities $3,246,503 $1,591,758 Stockholders' Equity Preferred $0.70 stock, $50 par $450,000 $450,000 Common stock, $10 par 510,000 510,000 Retained earnings 2,647,225 2,232,775 Total stockholders' equity $3,607,225 $3,192,775 Total liabilities and stockholders' equity $6,853,728 $4,784,533Required:
Determine the following measures for 2014, 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. Working capital $ 2. Current ratio 3. Quick ratio 4. Accounts receivable turnover 5. Number of days' sales in receivables days 6. Inventory turnover 7. Number of days' sales in inventory days 8. Ratio of fixed assets to long-term liabilities 9. Ratio of liabilities to stockholders' equity 10. Number of times interest charges are earned 11. Number of times preferred dividends are earned 12. Ratio of net sales to assets 13. Rate earned on total assets % 14. Rate earned on stockholders' equity % 15. Rate earned on common stockholders' equity % 16. Earnings per share on common stock $ 17. Price-earnings ratio 18. Dividends per share of common stock $ 19. Dividend yield %Explanation / Answer
For Year 2014:-
1. Working capital = Current assets - Current liabilities
= 2164859 - 746503
= $ 1418356
2. Current ratio = Current assets / Current liabilities
= 2164859 / 746503
= 2.90 : 1
3. Quick ratio = Quick assets / Current laibilities
Quick assets = Cash + Temporary investment + Accounts receivable
= 447170 + 676790 + 547500
= $ 1671460
Quick ratio = 1671460 / 746503
= 2.24 (approx) [ In other words 2.24 : 1 ]
4. Account receivable turnover = Net credit Sales / Average receivables
= 2877660 / 547500 + 518300 / 2
= 2877660 / 532900
= 5.40 Times (approx)
5. Number of days sales in receivables = 365 / 5.43
= 67 Days (approx)
6. Inventory turnover = Cost of goods sold / Average inventory
Average inventory = 408800 + 321200 / 2
= 365000
Inventory turnover = 1168000 / 365000
= 3.20 Times
7. Number of days' sales in inventory = 365 / 3.20
= 114 Days (approx)
8. Ratio of fixed assets to long term liabilities = Fixed assets / Long-term liabilities
= 2750000 / 2500000
= 1.1
9. Ratio of liability to stock holder's equity = Total liabilities / Stock holder equity
= 3246503 / 3607225
= 0.90
10. Number of times interest charges are earned = Eanings before interest & taxes (EBIT) / Interest
= 733200 / 200000
= 3.666 Times
11. Number of times preferred dividends are earned:- = Net income / Preference dividend
= 469200 / 6300
= 74.48 Times (approx)
12. Ratio of net sales to assets = Net sales / Total assets
= 2877660 / 6853728
= 0.4198 i.e., 41.98 %
Note:- Ratio of net sales to assets is calculated on Total assets. Alternatively you can also calculate this ratio on Average assets.
Related Questions
drjack9650@gmail.com
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.