Cintas designs, manufactures, and implements corporate identity uniform programs
ID: 2501494 • Letter: C
Question
Cintas designs, manufactures, and implements corporate identity uniform programs that it rents or sells to customers throughout the United States and Canada. The company’s stock is traded on the NASDAQ and has provided investors with significant returns over the past few years. Selected information from the company’s balance sheet follows. For 2012, the company reported sales revenue of $3,708,000 and cost of goods sold of $1,515,815.
Compute the current ratio, inventory turnover ratio, and accounts receivable turnover ratio (assuming that 60 percent of sales were on credit). (Round your answers to 1 decimal place.)
Cintas designs, manufactures, and implements corporate identity uniform programs that it rents or sells to customers throughout the United States and Canada. The company’s stock is traded on the NASDAQ and has provided investors with significant returns over the past few years. Selected information from the company’s balance sheet follows. For 2012, the company reported sales revenue of $3,708,000 and cost of goods sold of $1,515,815.
Explanation / Answer
Current ratio = current assets / current liabilities
Current assets = cash + Marketable securities + Accounts receivable + Inventories+ Prepaid expense and other
2011 =35,361 + 408,886 + 231,748 + 15,793 = 521799
2012= 38,927 + 202,540 + 389,908 + 198,011 + 15,793 = 455271
Current liabilities = Accounts payable + Accrued compensation and related liabilities + Accrued liabilities + Accrued tax liability + Long-term debt due within one year
2011 = 64,623 + 70,773 + 263,521 + 2,561 + 4,156 = 405634
2012= 71,653 + 95,381 + 239,076 + 26,665 = 432775
current assets (2011) = 521799/405634 = 1.28
current assets (2012) = 455271/432775 = 1.05
Inventory turnover ratio = cost of goods sold /average inventory
= $1,515,815/214879.5 = 7 times
where average inventory = inventory at beginning + inventory at end / 2
= 231,748 + 198,011 / 2 = 214879.5
Accounts receivable turnover ratio = Credit sales / average Accounts receivable
= $3,708,000 / 399397
= 9 times
where average Accounts receivable = Accounts receivable at beginning + Accounts receivable at end / 2
= 408,886 + 389,908
= 399397
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