Exercise 15-8 Selected Financial Ratios The financial statements for Castile Pro
ID: 2489787 • Letter: E
Question
Exercise 15-8 Selected Financial Ratios
The financial statements for Castile Products, Inc., are given below:
Account balances at the beginning of the year were: accounts receivable, $25,000; and inventory, $60,000. All sales were on account.
Compute the following financial data and ratios:
1. Working capital
2. Current ratio (Round your answer to 1 decimal place.)
3. Acid-test ratio (Round your answer to 2 decimal places.)
4. Debt-to-equity ratio (Round your answer to 2 decimal places.)
5. Times interest earned ratio (Round your answer to 2 decimal places.)
6. Average collection period (Use 365 days in a year. Round your answer to 1 decimal place.)
7. Average sale period (Use 365 days in a year. Round your intermediate and final answer to 1 decimal place.)
8. Operating cycle (Round your answer to 1 decimal place.)
The financial statements for Castile Products, Inc., are given below:
Explanation / Answer
1 Working Capital = Current Assets -Current Liabilities
= $115000-$50000
=$65000
2 Current Ratio= Current Ratio=Current Assets/Current Liabilities
=115000/50000
=2.3
3 Acid Test Ratio= Quick Assets/Current Liabilities
Quick Assets= Current Liabilitites-Inventory- Prepaid expenses
=115000-70000-3500
=41500
Acid test Ratio=41500/50000
=0.83
4 Debt to Equity Ratio= Total Liabilities/ Total Equity
=130000/170000
=0.76
5 Times Interest Earned= EBIT/Interest expense
=38000/8000
=4.75
6 Average Collection Period= Average Accounts Receivable/Credit Sales Per day
Average Sales Per day=$420000/365 =$1150.68
Average Accounts Receivable=$25000+$35000/2
=$30000
Average Collection Period= 30000/1150.68
=26.1 day
Average Sales Period=Average Accounts Receivable*Number of Days/Credit Sales during the period
=30000*365/420000
=26.1
8 Operating Cycle= Days Sales of Inventory+Days Sales Outstanding
Inventory Turnover= Average Inventory/Cost of Goods sold
=$65000*365/292500
=81.1
Operating cycle= 81.1+26.1
=107.2 days
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