Question

1. Twenty metrics of liquidity, The ability of a firm to pay its debts as they come due.Solvency, and The ability of a firm to earn income.Profitability

   The comparative financial statements of Automotive Solutions Inc. are as follows. The market price of Automotive Solutions Inc. common stock was $69 on December 31, 20Y8.

   AUTOMOTIVE SOLUTIONS INC. Comparative Income Statement For the Years Ended December 31, 20Y8 and 20Y7
   	20Y8		20Y7
   Sales	$3,994,560		$3,680,420
   Cost of goods sold	(1,423,500)		(1,309,620)
   Gross profit	$2,571,060		$2,370,800
   Selling expenses	$(886,200)		$(1,106,070)
   Administrative expenses	(754,910)		(649,590)
   Total operating expenses	(1,641,110)		(1,755,660)
   Operating income	$929,950		$615,140
   Other revenue and expense:
   Other income	48,950		39,260
   Other expense (interest)	(288,000)		(158,400)
   Income before income tax	$690,900		$496,000
   Income tax expense	(82,900)		(59,100)
   Net income	$608,000		$436,900

   AUTOMOTIVE SOLUTIONS INC. Comparative Statement of Stockholders’ Equity For the Years Ended December 31, 20Y8 and 20Y7
   	20Y8									20Y7
   	Preferred Stock			Common Stock			Retained Earnings			Preferred Stock			Common Stock			Retained Earnings
   Balances, Jan. 1		$550,000			$630,000			$2,534,025			$550,000			$630,000			$2,133,175
   Net income								608,000									436,900
   Dividends:
   Preferred stock								(7,700)									(7,700)
   Common stock								(28,350)									(28,350)
   Balances, Dec. 31		$550,000			$630,000			$3,105,975			$550,000			$630,000			$2,534,025

   AUTOMOTIVE SOLUTIONS INC. Comparative Balance Sheet December 31, 20Y8 and 20Y7
   	Dec. 31, 20Y8		Dec. 31, 20Y7
   Assets
   Current assets:
   Cash	$893,620		$603,410
   Temporary investments	1,352,510		999,930
   Accounts receivable (net)	722,700		678,900
   Inventories	540,200		408,800
   Prepaid expenses	169,061		120,680
   Total current assets	$3,678,091		$2,811,720
   Long-term investments	1,002,457		158,139
   Property, plant, and equipment (net)	4,320,000		3,888,000
   Total assets	$9,000,548		$6,857,859
   Liabilities
   Current liabilities	$1,114,573		$1,163,834
   Long-term liabilities:
   Mortgage note payable, 8%, due in 15 years	$1,620,000		$0
   Bonds payable, 8%, due in 20 years	1,980,000		1,980,000
   Total long-term liabilities	$3,600,000		$1,980,000
   Total liabilities	$4,714,573		$3,143,834
   Stockholders' Equity
   Preferred $0.70 stock, $50 par	$550,000		$550,000
   Common stock, $10 par	630,000		630,000
   Retained earnings	3,105,975		2,534,025
   Total stockholders' equity	$4,285,975		$3,714,025
   Total liabilities and stockholders' equity	$9,000,548		$6,857,859

   Instructions:

   Determine the following measures for 20Y8. Round ratio values to one decimal place and dollar amounts to the nearest cent. For number of days' sales in receivables and number of days' sales in inventory, round intermediate calculations to the nearest whole dollar and final amounts to one decimal place. Assume there are 365 days in the year.

   1. The excess of the current assets of a business over its current liabilities.Working capital	$
   2. A financial ratio that is computed by dividing current assets by current liabilities.Current ratio
   3. A financial ratio that measures the ability to pay current liabilities with quick assets (cash, marketable securities, accounts receivable).Quick ratio
   4. The relationship between net sales and accounts receivable, computed by dividing the net sales by the average net accounts receivable; measures how frequently during the year the accounts receivable are being converted to cash.Accounts receivable turnover
   5. The relationship between sales and accounts receivable, computed by dividing the average accounts receivable by the average daily sales.Days' sales in receivables		days
   6. The relationship between the volume of goods sold and inventory, computed by dividing the cost of goods sold by the average inventory.Inventory turnover
   7. The relationship between the volume of sales and inventory, computed by dividing average inventory by the average daily cost of goods sold.Days' sales in inventory		days
   8. Debt ratio		%
   9. A comprehensive leverage ratio that measures the relationship of the claims of creditors to stockholders' equity.Ratio of liabilities to stockholders' equity
   10. A leverage ratio that measures the margin of safety of long-term creditors, calculated as the net fixed assets divided by the long-term liabilities.Ratio of fixed assets to long-term liabilities
   11. A ratio that measures creditor margin of safety for interest payments, calculated as income before taxes plus interest expense divided by interest expense.Times interest earned		times
   12. A ratio that measures the risk that preferred dividends will not be paid if earnings decrease, calculated by dividing net income by the amount of preferred dividends.Times preferred dividends earned		times
   13. Ratio that measures how effectively a company uses its assets, computed as net sales divided by average total assets.Asset turnover
   14. A measure of the profitability of assets, without regard to the equity of creditors and stockholders in the assets.Return on total assets		%
   15. A measure of profitability computed by dividing net income by average total stockholders' equity.Return on stockholders’ equity		%
   16. A measure of profitability computed by dividing net income, reduced by preferred dividend requirements, by common stockholders' equity.Return on common stockholders’ equity		%
   17. The profitability ratio of net income available to common shareholders to the number of common shares outstanding.Earnings per share on common stock	$
   18. The ratio of the market price per share of common stock, at a specific date, to the annual earnings per share.Price-earnings ratio
   19. Measures the extent to which earnings are being distributed to common shareholders.Dividends per share of common stock	$
   20. A ratio, computed by dividing the annual dividends paid per share of common stock by the market price per share at a specific date, that indicates the rate of return to stockholders in terms of cash dividend distributions.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 net 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 net 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 cost of goods sold are cost of goods sold divided by 365 days.
   8. Divide total liabilities by total assets.
   9. Divide total liabilities by total stockholders’ equity.
   10. Divide property, plant and equipment (net) by long-term liabilities.
   11. Divide the sum of income before income tax plus interest expense by interest expense.
   12. Divide net income by preferred dividends [Preferred stock ÷ par value x dividend per preferred share].
   13. Divide net sales by average property, plant & equipment, . Average PPE = (Beginning PPE + Ending PPE) ÷ 2
   14. Divide the sum of net income plus interest expense by average total assets. Average total assets = (Beginning Total Assets + Ending Total Assets) ÷ 2
   15. Divide net income by average stockholders’ equity. Average stockholders’ equity = (Beginning Stockholders’Equity + Ending Stockholders’Equity) ÷ 2
   16. Divide net income minus preferred dividends [Preferred stock ÷ par value x dividend per preferred share] 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
   17. Divide net income minus preferred dividends [Preferred stock ÷ par value x dividend per preferred share] by common shares outstanding (common stock ÷ par value).
   18. Divide common market share price by common earnings per share (use answer from requirement 17).
   19. Divide common dividends (from Statement of Stockholders Equity) by common shares outstanding (common stock ÷ par value).
   20. Divide common dividends per share (use answer from requirement 19) by market share price.

Answer 1

20Y8:

1)

Working Capital = Total Current Assets - Total Current Liabilities

= $3,678,091 - $1,114,573

= $2,563,518

Therefore, working capital is $2,563,518.

2)

Current Ratio = Total Current Assets / Total Current Liabilities

= $3,678,091 / $1,114,573

= 3.30

Therefore, current ratio is 3.30.

3)

Quick Ratio = (Total Current Assets - Inventory - Prepaid Expenses) / Total Current Liabilities

= ($3,678,091 - $540,200 - $169,061) / $1,114,573

= $2,968,830 / $1,114,573

= 2.66

Therefore, quick ratio is 2.66.

4)

Accounts Receivable Turnover = Net Sales / Average Accounts Receivable

Average Accounts Receivable = (Accounts Receivable in 20Y7 + Accounts Receivable in 20Y8) / 2

= ($678,900 + $722,700) / 2

= $1,401,600

Therefore, accounts receivable turnover -

Accounts Receivable Turnover = Net Sales / Average Accounts Receivable

= $3,994,560 / $1,401,600

= 2.85

Therefore, accounts receivable turnover is 2.85.

Note: As per Cheg guidelines, the first four sub parts were answered, hence, please post the remaining sub parts separately.