5. Selected financial data for Amberjack Corporation follows. ($ thousands) Year

Question

5. Selected financial data for Amberjack Corporation follows. ($ thousands) Year 2 Sales Cost of goods sold Net income Cash flow from operations Year 1 271,161 249,181 (155,034) (58,405) 457,977 341,204 (403,509) (20,437) Cash Marketable securities Accounts receivable Inventories 341,180 341,762 21,011 6,473 710,427 268,872 36,900 35,298 72,106 413,176 Total current assets Accounts payable Accrued liabilities 28,908 44,310 73,218 22,758 124,851 147,610 Total current liabilities a. Calculate the current and quick ratio at the end of each year. How has the company's short-term liquidity changed over this period? b. Assuming a 365-day year for all calculations, compute the following: i. The collection period each year based on sales. i. The inventory turnover and the payables period each year based on cost of goods sold.

Explanation / Answer

Amberjack Corporation Ratio Analysis Particulars Formula Year 1 Year 2 A.i Current Ratio Current Assets/ Current liabilities 9.7 2.8 A.ii Quick Ratio (Cash + Marketable Securities + Accounts Receivable) / Current Liabilities 9.61 2.31 B.i Receivable Turnover Ratio Sales/ Accounts Receivable 12.9 12.98 Average Collection Period 365/ Accounts Receivable Turnover Ratio 28.29 Days 28.12 Days B.ii Inventory Turnover Ratio Sales/ Inventory 41.89 Times 6.35 Times Payable Period Accounts Payable * 365 / COGS 42.34 Days 24.35 Days B.iii Days Sales Accounts Receivable / (annual sales / 365 days) 28.28 4736 C.iv Gross Margin Sales - COGS / Sales * 100 8.10% 25.49% Profit Margin Net Income / Revenue *100 -57.17% -88.10% These ratios suggest that the company's perfomance is deteriorating. The payable period has reduced drastically, suggesting that the credit period has decreased. Also, the profit margins are negative.

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