The financial statements include the following: Balance sheet: Cash 2014-48000 2
ID: 2468727 • Letter: T
Question
The financial statements include the following:
Balance sheet:
Cash 2014-48000 2013-84000
Short-term investments 2014-17000 2013-21000
Net receivables 2014-72000 2013-75000 2012-55000
inventory-2014-85000 2013-72000 2012-60000
prepaid expenses 2014-8000 2013-6000
total current assets 2014-230000 2013-258000
accounts payable 2014-75000 2013-65000 2012-50000
total current liabilities 2014-131000 2013-94000
Income statement:
net credit sales 2014-484000 2013-507000
cost of goods sold 2014-266000 2013-254000
REQUIREMENTS: Compute the ratios for 2014 and 2013.
a. current ratio
b. quick (acid test) ratio
c. Inventory turnover and days inventory outstanding (DIO)
d. Accounts receivable turnover
e. Days sales in average receivables or days sales outstanding (DSO)
f. Accounts payable turnover and days payable outstanding (DPO). use cost of goods sold in the formula for accounts payable turnover.
g. cash conversion cycle (in days).
Explanation / Answer
(230000-85000-8000)/131000
= 137000/ 131000
=1.05
(258000-72000-6000)/94000
=180,000/94000
=1.91
266000/(85000+72000)/2
= 266000 / 78500
= 3.39
254000/ (72000+60000)/2
= 254000/ 66000
= 3.85
365/ 3.39
= 107.67 days
365/ 3.85
= 94.81 days
484000/ (72000+75000)/2
484000/ 73500
= 6.59
507000/(75000+55000)/2
507000 / 65000
= 7.80
365 / 6.59
= 55.39 Days
365/ 7.80
= 46.79 days
266000/ (75000+65000)/2
266000/70000
= 3.80
254000/ (65000+50000)/2
254000/ 57500
= 4.42
365/ 3.8
= 96.05 days
365/ 4.42
= 82.58 days
107.67+55.39-96.05
=67.01 days
94.81+46.79-82.58
=59.02 days
2014 2013 current ratio = Current asset /current liabilities 230000/131000 = 1.76 258000/94000 = 2.74 Quick ratio = (Current asset-Inventory-Prepaidexp) /current liabilities(230000-85000-8000)/131000
= 137000/ 131000
=1.05
(258000-72000-6000)/94000
=180,000/94000
=1.91
Inventory Turnover COGS/Average inventory266000/(85000+72000)/2
= 266000 / 78500
= 3.39
254000/ (72000+60000)/2
= 254000/ 66000
= 3.85
Days outstanding 365 /Inventory Turnover365/ 3.39
= 107.67 days
365/ 3.85
= 94.81 days
Accounts receivable turnover Sales /average receivable484000/ (72000+75000)/2
484000/ 73500
= 6.59
507000/(75000+55000)/2
507000 / 65000
= 7.80
days sales outstanding 365 / Accounts receivable turnoveR365 / 6.59
= 55.39 Days
365/ 7.80
= 46.79 days
Accounts payable turnover COGS /Average payables266000/ (75000+65000)/2
266000/70000
= 3.80
254000/ (65000+50000)/2
254000/ 57500
= 4.42
Days payable outstanding 365/payable turnover365/ 3.8
= 96.05 days
365/ 4.42
= 82.58 days
cash conversion cycle days inventory outstanding +days sales outstanding- days payable outstanding107.67+55.39-96.05
=67.01 days
94.81+46.79-82.58
=59.02 days
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