Question

19,000 8) Explain how financial statements are used to analyze businesses. The financial statements of Phil's Burgers include the following items: Compute the following ratios for the current year: 2018 2017 Balance Sheet: Cash $ 16,000 $ 26,000 Short-term Investments 28.000 Net Accounts Receivable 60,000 92,000 Merchandise Inventory 78,000 74,000 Prepaid Expenses 17.000 6,000 Total Current Assets 190,000 226,000 Total Current Liabilities 136,000 82,000 Income Statement: Net Credit Sales $ 476,000 Cost of Goods Sold 312,000 Ratio Formula / Calculation BASIC ARD/SCD- a. Current ratio b. Cash ratio c. Acid-test ratio d. Inventory turnover e. Days' sales in inventory f. Days' sales in receivables 8. Gross profit percentage

Answer 1

Current ratio

Current ratio = Total current assets / Total current liabilities

= $190,000 / $136,000

= 1.40

Cash ratio

Cash ratio = Total Cash & Cash Equivalents / Total Current Liabilities

= $16,000 / $136,000

= 0.12

Acid test ratio

Acid test ratio = [Total current assets – Inventory – Prepaid expenses] / Total current liabilities

= [$190,000 - $78,000 - $17,000] / $136,000

= $95,000 / $136,000

= 0.70

Inventory Turnover

Inventory Turnover = Cost of goods sold / Average inventory

= $312,000 / [($78,000 + $74,000)/2]

= $312,000 / $76,000

= 4.11 Times

Days sales in inventory

Days sales in inventory = 365 Days / Inventory Turnover

= 365 Days / 4.11 Days

= 88.81 Days

Days sales in receivables

Days sales in receivables = Average accounts receivables / Credit sales per day

= [($60,000 + $92,000)/2] / [$476,000 / 365 Days]

= $76,000 / $1,304.11 per day

= 58.28 Days

Gross profit percentage

Gross profit percentage = [Gross profit / Sales] x 100

= [($476,000 - $312,000) / $476,000] x 100

= [$164,000 / $476,000] x 100

= 34.45%