Nineteen Measures of Solvency and Profitability The comparative financial statem

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 $66 on December 31, 2016.

Required:

Determine the following measures for 2016, rounding to one decimal place, except for dollar amounts, which should be rounded to the nearest cent. Use the rounded answer of the requirement for subsequent requirement, if required. Assume 365 days a year.

Blige Inc. Comparative Retained Earnings Statement For the Years Ended December 31, 2016 and 2015     2016     2015 Retained earnings, January 1 $2,425,150 $2,040,050 Add net income for year 562,400 417,800 Total $2,987,550 $2,457,850 Deduct dividends On preferred stock $9,100 $9,100 On common stock 23,600 23,600 Total $32,700 $32,700 Retained earnings, December 31 $2,954,850 $2,425,150

Explanation / Answer

1). Working Capital = Current assets - Current Liabilities

= $3642539 - $1071335

= $2571204

2). Current Ratio = Current Assets / Current liabilities

= $3642539 / $1071335

= 3.4 times

3) Quick Ratio = (Current Assets - Inventory - Prepaid Exp.) / Current Liabilities

= ($3642539 - $511000 - $171169) / $1071335

= $2960370 / $1071335

= 2.76 Times

4). Accounts Receivable Turnover = Net Sales / Average Accounts Receivable

= $3919370 / ($686200 + $642400)/2

= $3919370 / $664300

= 5.9 times

5). No. of Days, Sales in receivable = Accounts Receivable / (Annual Sales/365 Days)

= $686200 / ($3919370/365)

= $686200/ 10738

= 63.9 or 64 Days

6) Inventory Turnover = Cost of Goods Sold / Average Inventory

= $1403060 / (($511000+$394200)/2)

= $1403060 / $452600

= 3.1 Times

7). No. of Days Sales in Inventory = (Ending Inventory / Cost of Goods Sold) * 365 Days

= ($511000 / $1403060) * 365

= 0.3642 * 365

= 132.93 or 133 Days

13). Rate earned on total assets = Annual Net Income / Average Total Assets

= $562400 / (($8536185+$6498049)/2)

= $562400 / ($15034234/2)

= $562400 / $7517117

= 7.48%

14). Rate earned on stockholders' equity = Annual Net Income / Stockholder's Equity

= $562400 / $4064850

= 13.84%

15). Rate earned on common stockholders' equity = Annual Net Income / Common Stockholder's Equity

= $562400 / $590000

= 95.32%

16). Earnings per share on common stock = (Net Income - Preferred Dividend)/No. of Common Share Outstanding

= ($562400 - $9100)/ 59000

= $9.38 per Share

17).  Price-earnings ratio = Market Value of share / Earning per share

= $10 / $9.38

= 1.07

18). Dividends per share of common stock = Dividend / No. of Common share outstanding

= $23600 / 59000

= $0.4 per share

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