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.