Reference no: EM131710340

Problem - 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 $60 on December 31, 2016.

Blige Inc. Comparative Retained Earnings Statement For the Years Ended December 31, 2016 and 2015
	2016	2015
Retained earnings, January 1	$2,571,475	$2,179,925
Add net income for year	552,000	446,500
Total	$3,123,475	$2,626,425
Deduct dividends
On preferred stock	$7,700	$7,700
On common stock	47,250	47,250
Total	$54,950	$54,950
Retained earnings, December 31	$3,068,525	$2,571,475

 

Blige Inc. Comparative Income Statement For the Years Ended December 31, 2016 and 2015
	2016	2015
Sales	$3,512,720	$3,231,700
Sales returns and allowances	17,480	11,360
Sales	$3,495,240	$3,220,340
Cost of goods sold	1,185,520	1,090,680
Gross profit	$2,309,720	$2,129,660
Selling expenses	$806,430	$965,640
Administrative expenses	686,960	567,120
Total operating expenses	1,493,390	1,532,760
Income from operations	$816,330	$596,900
Other income	42,970	38,100
	$859,300	$635,000
Other expense (interest)	232,000	128,000
Income before income tax	$627,300	$507,000
Income tax expense	75,300	60,500
Net income	$552,000	$446,500

 

Blige Inc. Comparative Balance Sheet December 31, 2016 and 2015
	Dec. 31, 2016	Dec. 31, 2015
Assets
Current assets
Cash	$609,320	$547,350
Temporary investments	922,220	907,040
Accounts receivable (net)	642,400	605,900
Inventories	481,800	365,000
Prepaid expenses	115,279	109,470
Total current assets	$2,771,019	$2,534,760
Long-term investments	2,111,179	776,587
Property, plant, and equipment (net)	3,190,000	2,871,000
Total assets	$8,072,198	$6,182,347
Liabilities
Current liabilities	$923,673	$830,872
Long-term liabilities
Mortgage note payable, 8%, due 2021	$1,300,000	$0
Bonds payable, 8%, due 2017	1,600,000	1,600,000
Total long-term liabilities	$2,900,000	$1,600,000
Total liabilities	$3,823,673	$2,430,872
Stockholders' Equity
Preferred $0.7 stock, $50 par	$550,000	$550,000
Common stock, $10 par	630,000	630,000
Retained earnings	3,068,525	2,571,475
Total stockholders' equity	$4,248,525	$3,751,475
Total liabilities and stockholders' equity	$8,072,198	$6,182,347

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

1. 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. Number of times interest charges are earned

11. Number of times preferred dividends are earned

12. Ratio of 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

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 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 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 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.