Use charts for both questions 1. Find the company’s NWC. 2. How long, on average
ID: 2821353 • Letter: U
Question
Use charts for both questions
1. Find the company’s NWC.
2. How long, on average, does it take for the company to sell inventory items after acquiring them? Round intermediate steps to 4 decimals and final answer to nearest whole day.
Assets Cash Invento Accounts Receivable Fixed Assets 1800 400 1500 1000 Liabilities and Equit Accounts Payable Accrued Operating Expense100 Notes Payable Long term debt Shareholders' equit Total 500 800 500 2800 4700 Total 4700 Income Statement Revenues 3000 COGS 2700 erating Expenses 100 Depreciation Interest Taxes Net Profit 20 10 25 145Explanation / Answer
Net Working Capital
Net working capital measures the business ‘ability to pay off its current liabilities using current assets. It shows a firm’s short-term liquidity and is useful to vendors and creditors.
Current Assets are short-term assets that can be converted to cash within one year or less. Current Liabilities are short-term financial obligation which are payable in 1 year or less than 1 year.
Formula for calculating the net working capital:
Net Working Capital= Current Assets- Current Liabilities
Net Working capital= (Cash & cash equivalents+ marketable securities+ Inventory+ Accounts Receivable)- (Accounts payables + accrued expenses+ Other trade debt)
Net Working capital= ($1,800+$400+$1,500)- ($500+$100)
= $3,700- $600= $3,100.
Therefore, the net working capital of the firm is $3,100.
2. Inventory Turnover ratio
Inventory turnover ratio measures the efficiency with which it converts its inventory into sales.
Formula for computing inventory turnover ratio:
Inventory Turnover Ratio= Cost of goods sold/Average inventory
Inventory Turnover ratio= $2,700/$400= 6.7500
Number of days inventory
Number of days of inventory measures the number of days it takes a firm to sell its entire inventory.
Formula for computing number of days of inventory:
Number of days of inventory= 365/Inventory turnover
= 365/6.75= 54 days
Therefore, the company takes 54 days to sell inventory items after acquiring them.
I hope that was helpful :)
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