Asked by allison brockington on Jul 22, 2024
Verified
Use the financial data shown below to calculate the following ratios for the current year:
(a)Current ratio.
(b)Acid-test ratio.
(c)Accounts receivable turnover.
(d)Days' sales uncollected.
(e)Inventory turnover.
(f)Days' sales in inventory.
Acid-test Ratio
A liquidity ratio that measures a company’s ability to pay off its current liabilities with quick assets, excluding inventory.
Accounts Receivable Turnover
A financial ratio that measures the efficiency of a company in collecting its receivables or the credit it has extended to customers.
Inventory Turnover
A ratio indicating how many times a company's inventory is sold and replaced over a specific period.
- Understand and apply various financial ratios to assess a company’s liquidity, solvency, and efficiency.
- Analyze a company’s ability to turn its accounts receivable and inventory into cash, focusing on turnover ratios and days' sales outstanding.
Verified Answer
($19,500 + $65,000 + $71,500)/$62,400 = 2.5
(b)Acid-test ratio:
($19,500 + $65,000)/$62,400 = 1.35
(c)Accounts receivable turnover:
$650,000/[($65,000 + $60,000)/2] = 10.4 times
(d)Days' sales uncollected:
($65,000/$650,000)* 365 = 36.5 days
(e)Inventory turnover:
$425,000/[($71,500 + $64,500)/2] = 6.25 times
(f)Days' sales in inventory:
($71,500/$425,000)* 365 = 61.4 days
Learning Objectives
- Understand and apply various financial ratios to assess a company’s liquidity, solvency, and efficiency.
- Analyze a company’s ability to turn its accounts receivable and inventory into cash, focusing on turnover ratios and days' sales outstanding.
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