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Safari File Edit View History Bookmarks Window Help ng.cengage Golf I Keystone Ski Resort Keystone Ranch on Vimeo MINDTAP From Cengage Q Search this Ch 04: Assignment-Analysis of Financial Statements Asset management ratios are used to measure how effectively a firm manag particular type of asset (or group of assets) to the the average collection period (also called the days sales outstanding ratio), the inventory turnover ratio, the fixed asset turnover ratio, and the total asset turnover ratio. es its assets, by relating the amount a firm has invested in a amount of revenues the asset is generating. Examples of asset management ratios include Consider the following case: Polk Software Inc. has a quick ratio of 2.00x, $25,425 in cash, $14,125 and total current liabilities of $19,775. The company reported annual sales of $100,000 in the most recent annual report. in accounts receivable, some inventory, total current assets of $56,500, Over the past year, how often did Polk Software Inc. sell and replace its inventory? O 5.90 x O 6.49 x O 8.01 x O 2.86 x The inventory turnover ratio across companies in the softwa true for Polk Software Inc.? re industry is 5.02x. Based on this information, which of the following statements is O Polk Software Inc. is holding more inventory per dollar of sales compared to the industry average. O Polk Software Inc. is holding less inventory per dollar of sales compared to the industry average.

Explanation / Answer

1.A.5.90x

inventory = total current assets - cash - accounts receivable

=>56,500 - 25,425 - 14,125

=>Rs.16,950.

inventory turnover = annual sales / inventory

=>$100,000 / 16,950

=>5.90x.

5.90x is inventory turnover ratio i.e inventory is sold and replaced 5.90x times.

2nd question:

B.Polk software inc is holding less inventory per dollar of sales compared to the industry average.

(since its inventory turnover ratio of 5.90x is greater than industry average of 5.02x, it can be said that Polk software inc is holding less inventory per dollar of sales than industry average).

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