Consider the following case: Franklin Aerospace has a quick ratio of 2.00x, $29,

Question

Consider the following case: Franklin Aerospace has a quick ratio of 2.00x, $29,475 in cash, $16,375 in accounts receivable, some inventory, total current assets of $65,500, and total current liabilities of $22,925. The company reported annual sales of $200,000 in the most recent annual report. Over the past year, how often did Franklin Aerospace sell and replace its inventory? 10.18 O 11.20 x O 2.86 x O 8.01 x The inventory turnover ratio across companies in the aerospace industry is 8.65x. Based on this information, which of the following statements is true for Franklin Aerospace? O Franklin Aerospace is holding more inventory per dollar of sales compared to the industry average O Franklin Aerospace is holding less inventory per dollar of sales compared to the industry average.

Explanation / Answer

Inventory turnover ratio = Sales /Inventory

Quick ratio = current assets - inventory/Current Liabilities

2 = ($65,500-x)/$22,925

x= $65,500-$45,850

x= $19,650

Inventory Turnover Ratio:

= $200,000/$19,650

= 10.18 x

B. As Franklin. turnover ratio is more as compared to industry therefore, it must have holding less inventory per dollar of slaes compared to industry Average.

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