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Chapter 17 HWK
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Measures of liquidity, Solvency and Profitability
The comparative financial statements of Stargel Inc. are as follows. The market price of Stargel common stock was $119.70 on December 31, 20Y2.
Required:
Determine the following measures for 20Y2, rounding to one decimal place, except 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.
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| Stargel Inc. | ||||||
| Comparative Retained Earnings Statement | ||||||
| For the Years Ended December 31, 20Y2 and 20Y1 | ||||||
| 20Y2 | 20Y1 | |||||
| Retained earnings, January 1 | $5,375,000 | $4,545,000 | ||||
| Net income | 900,000 | 925,000 | ||||
| Total | $6,275,000 | $5,470,000 | ||||
| Dividends: | ||||||
| Preferred stock dividends | $45,000 | $45,000 | ||||
| Common stock dividends | 50,000 | 50,000 | ||||
| Total dividends | $95,000 | $95,000 | ||||
| Retained earnings, December 31 | $6,180,000 | $5,375,000 |
Solution
1. Working capital = Current assets-current liabilities
= 3690000-900000
Working capital = 2790000
2. Current ratio = Current assets/current liabilities
= 3690000/900000
Current ratio = 4.1 times
3. Quick ratio = (Current assets-inventories-prepaid exp)/Current liabilities
= (3690000-1190000-250000)/900000
Quick ratio = 2.5 Times
4. Account receivable turnover = Credit sales/average receivable
= 10000000/(740000+510000/2)
Account receivable turnover = 16 Days
5. Number of days\' sales in receivables = 365/Account receivable turnover
= 365/16
Number of days\' sales in receivables = 22.8 days
