Question

The comparative financial statements of Stargel Inc. are as follows.

The market price of Stargel common stock was $119.70 on December 31, 20Y2.
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
Dividends:
On preferred stock -45,000 -45,000
On common stock -50,000 -50,000
Increase in retained earnings $805,000 $830,000
Retained earnings, December 31 $6,180,000 $5,375,000


Stargel Inc.
Comparative Income Statement
For the Years Ended December 31, 20Y2 and 20Y1
20Y2 20Y1
Sales $10,000,000 $9,400,000
Cost of goods sold -5,350,000 -4,950,000
Gross profit $4,650,000 $4,450,000
Selling expenses ($2,000,000) ($1,880,000)
Administrative expenses -1,500,000 -1,410,000
Total operating expenses ($3,500,000) ($3,290,000)
Operating income $1,150,000 $1,160,000
Other revenue and expense:
Other revenue 150,000 140,000
Other expense (interest) -170,000 -150,000
Income before income tax expense $1,130,000 $1,150,000
Income tax expense -230,000 -225,000
Net income $900,000 $925,000


Stargel Inc.
Comparative Balance Sheet
December 31, 20Y2 and 20Y1
20Y2 20Y1
Assets
Current assets:
Cash $500,000 $400,000
Marketable securities 1,010,000 1,000,000
Accounts receivable (net) 740,000 510,000
Inventories 1,190,000 950,000
Prepaid expenses 250,000 229,000
Total current assets $3,690,000 $3,089,000
Long-term investments 2,350,000 2,300,000
Property, plant, and equipment (net) 3,740,000 3,366,000
Total assets $9,780,000 $8,755,000
Liabilities
Current liabilities $900,000 $880,000
Long-term liabilities:
Mortgage note payable, 10% $200,000 $0
Bonds payable, 10% 1,500,000 1,500,000
Total long-term liabilities $1,700,000 $1,500,000
Total liabilities $2,600,000 $2,380,000
Stockholders' Equity
Preferred $0.90 stock, $10 par $500,000 $500,000
Common stock, $5 par 500,000 500,000
Retained earnings 6,180,000 5,375,000
Total stockholders' equity $7,180,000 $6,375,000
Total liabilities and stockholders' equity $9,780,000 $8,755,000

Required:
Determine the following (1–18) measures for 20Y2, rounding to one decimal place, except the dollar amount, which should be rounded to the nearest cent. Use the rounded answer to the requirement for subsequent requirements, if required. Assume 365 days a year. Show each formula and calculation on the worksheet.
1 to 18 (4.73 points each) = 85 maximum possible
Formula Calculation and Answer
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 days
8 Ratio of fixed assets to long-term liabilities
9 Ratio of liabilities to stockholders' equity
10 Times interest earned
11 Asset turnover
12 Return on total assets %
13 Return on stockholders’ equity %
14 Return on common stockholders’ equity %
15 Earnings per share on common stock
16 Price-earnings rati0
17 Dividends per share of common stock
18 Dividend yield

Answer 1

To calculate the measures for Stargel Inc. for the year 20Y2, we can use the given financial information. Here are the formulas and calculations for each measure:

1. Working Capital:

Working Capital = Current Assets - Current Liabilities

2. Current Ratio:

Current Ratio = Current Assets / Current Liabilities

3. Quick Ratio:

Quick Ratio = (Current Assets - Inventories) / Current Liabilities

4. Accounts Receivable Turnover:

Accounts Receivable Turnover = Sales / Average Accounts Receivable

(Use the average of the beginning and ending accounts receivable)

5. Number of Days' Sales in Receivables:

Number of Days' Sales in Receivables = 365 / Accounts Receivable Turnover

6. Inventory Turnover:

Inventory Turnover = Cost of Goods Sold / Average Inventory

(Use the average of the beginning and ending inventory)

7. Number of Days' Sales in Inventory:

Number of Days' Sales in Inventory = 365 / Inventory Turnover

8. Ratio of Fixed Assets to Long-term Liabilities:

Ratio of Fixed Assets to Long-term Liabilities = Fixed Assets / Long-term Liabilities

9. Ratio of Liabilities to Stockholders' Equity:

Ratio of Liabilities to Stockholders' Equity = Total Liabilities / Stockholders' Equity

10. Times Interest Earned:

Times Interest Earned = Operating Income / Interest Expense

11. Asset Turnover:

Asset Turnover = Sales / Average Total Assets

(Use the average of the beginning and ending total assets)

12. Return on Total Assets (%):

Return on Total Assets = Net Income / Average Total Assets * 100

(Use the average of the beginning and ending total assets)

13. Return on Stockholders' Equity (%):

Return on Stockholders' Equity = Net Income / Average Stockholders' Equity * 100

(Use the average of the beginning and ending stockholders' equity)

14. Return on Common Stockholders' Equity (%):

Return on Common Stockholders' Equity = Net Income - Preferred Dividends / Average Common Stockholders' Equity * 100

(Use the average of the beginning and ending common stockholders' equity)

15. Earnings per Share on Common Stock:

Earnings per Share on Common Stock = Net Income - Preferred Dividends / Weighted Average Common Shares Outstanding

16. Price-Earnings Ratio:

Price-Earnings Ratio = Market Price per Share / Earnings per Share on Common Stock

17. Dividends per Share of Common Stock:

Dividends per Share of Common Stock = Common Dividends / Weighted Average Common Shares Outstanding

18. Dividend Yield:

Dividend Yield = Dividends per Share of Common Stock / Market Price per Share

Please note that some calculations require the use of averages or weighted averages based on the given information. Use the provided financial data to perform the necessary calculations and apply the appropriate formulas to determine the values for each measure.