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 $60 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 $3,632,050 $3,080,450 Add net income for year 795,200 630,900 Total $4,427,250 $3,711,350 Deduct dividends On preferred stock $10,500 $10,500 On common stock 68,800 68,800 Total $79,300 $79,300 Retained earnings, December 31 $4,347,950 $3,632,050

Explanation / Answer

Blige Inc Formula Calculation Answer 1 Working Capital =Current Asset-Current Liabilities =3499080-1166360 2332720 2 Current Ratio =Current Asset/Current Liabilities =3499080/1166360 3 3 Quick Ratio =Quick Asset/Current Liabilities =(3499080-642400-138670)/1136360 2.4 Note : Quick asset=Current asset-Invntory-Prepaid expenses 4 Accounts Receivable Turnover =Total Net sales/Average Accounts Receivable =4513590/((861400+810300)/2) 5.4 Note : Instead of average accounts receivable, one can take ending accounts receivable 5 No. of days' sales in receivable =360/Accounts Receivable turnover =360/5.4 67 Days 6 Inventory turnover =Cost of goods sold/Average Inventory =1708200/((642400+496400)/2) 3 7 No. of days' sales in inventory =360/Inventory turnvoer =360/3 120 Days 8 Ratio of Fixed Asset to Long term Liabilities =Fixed Asset/Long term Liabilities =4680000/3600000 1.3 9 Ratio of Liabilties to stockholder's equity =Liabilities/Stockholder's equity =4766360/5957950 0.8 10 No. of times Interest charges are earned =Earning Before Interest & Taxes/Interest expense =(903600+288000)/288000 4.1 11 No. of times the preferred dividends are earned =Earning after tax/Preferred Dividend =795200/10500 75.7 12 Ratio of sales to asset =Net Sales/ Total Asset =4513590/10724310 0.4 13 Rate earned on total asset =Earning after tax/Total Asset =795200/10724310 7.4 % 14 Rate earned on stockholder's equity =Earning after tax/stockholder's equity =795200/5957950 13.35 % 15 Rate earned on Common stockholder's equity =Earning after tax/common stockholder's equity =795200/(860000+4347950) 15.27 % 16 Earning per share on common stock =Earning after tax/No. of common stock =795200/86000 9.2 $ 17 Price earning ratio =Market price per share/Earning per share =60/9.2 6.5 18 Dividends per share of common stock =Dividends on common stock/No. of common stock =68800/86000 0.8 $ 19 Dividend Yield =Dividend Per stock/Market price Per stock =0.8/60 1.33 % Thank You

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