Part A Que 1: | |||||
Ans: | |||||
Working capital of company S: | |||||
Working capital | = | Current asset-Current liabilities | |||
Current asset | = | Cash+Accounts receivable+Inventory | |||
Current asset | = | 51000+75000+84000 | |||
Current asset | = | 210000 | |||
Current liabilities | = | 105000 | |||
Working capital | = | 210000-105000 | |||
Working capital | = | 105000 | |||
Working capital of company N: | |||||
Working capital | = | Current asset/Current liabilities | |||
Current asset | = | Cash+Accounts receivable+Inventory | |||
Current asset | = | 20000+70000+160000 | |||
Current asset | = | 250000 | |||
Current liabilities | = | 100000 | |||
Working capital | = | 250000-100000 | |||
Working capital | = | 150000 |
Part A Que 2: | |||||
Ans: | |||||
Current ratio of company S: | |||||
Current ratio | = | Current asset/Current liabilities | |||
Current asset | = | Cash+Accounts receivable+Inventory | |||
Current asset | = | 51000+75000+84000 | |||
Current asset | = | 210000 | |||
Current liabilities | = | 105000 | |||
Current ratio | = | 210000/105000 | |||
Current ratio | = | 2.:1 | |||
Current ratio of company N: | |||||
Current ratio | = | Current asset/Current liabilities | |||
Current asset | = | Cash+Accounts receivable+Inventory | |||
Current asset | = | 20000+70000+160000 | |||
Current asset | = | 250000 | |||
Current liabilities | = | 100000 | |||
Current ratio | = | 250000/100000 | |||
Current ratio | = | 2.5:1 |
Part A Que 3: | ||||
Ans: | ||||
Acid test ratio of company S: | ||||
Acid test raio | = | Quick asset/Current liabilities | ||
Quick asset | = | Current asset-Inventory | ||
Quick asset | = | 210000-84000 | ||
Quick asset | = | 126000 | ||
Current liabilities | = | 105000 | ||
Acid test raio | = | 126000/105000 | ||
Current ratio | = | 1.2:1 | ||
Acid test ratio of company N: | ||||
Acid test raio | = | Quick asset/Current liabilities | ||
Quick asset | = | Current asset-Inventory | ||
Quick asset | = | 250000-160000 | ||
Quick asset | = | 90000 | ||
Current liabilities | = | 105000 | ||
Acid test raio | = | 90000/105000 | ||
Current ratio | = | 0.85:1 | ||
Part A Que 4: | ||||
Ans: | ||||
Inventory turnover ratio of company S: | ||||
Inventory turnover ratio | = | COGS/Average inventory | ||
COGS | = | 504000 | ||
Average inventory | = | 84000 | ||
Inventory turnover ratio | = | 504000/84000 | ||
Inventory turnover ratio | = | 6 times | ||
Days in inventory turnover | = | 365/Inventory turnover ratio | ||
Days in inventory turnover | = | 365/6 | ||
Days in inventory turnover | = | 61 days | ||
Inventory turnover ratio of company N: | ||||
Inventory turnover ratio | = | COGS/Average inventory | ||
COGS | = | 480000 | ||
Average inventory | = | 160000 | ||
Inventory turnover ratio | = | 480000/160000 | ||
Inventory turnover ratio | = | 3 times | ||
Days in inventory turnover | = | 365/Inventory turnover ratio | ||
Days in inventory turnover | = | 365/3 | ||
Days in inventory turnover | = | 122 days | ||
Part A Que 5: | |||||
Ans: | |||||
Accounts receivable turnover ratio of company S: | |||||
Accounts receivable turnover ratio | = | Net credit sales/average accounts receivable | |||
Net credit sales | = | 675000 | |||
Average accounts receivable | = | 75000 | |||
Accounts receivable turnover ratio | = | 675000/75000 | |||
Accounts receivable turnover ratio | = | 9 times | |||
Days in receivable | = | 365/accounts receivabe turnover ratio | |||
Days in receivable | = | 365/9 | |||
Days in receivable | = | 41 days | |||
Accounts receivable turnover ratio of company N: | |||||
Accounts receivable turnover ratio | = | Net credit sales/average accounts receivable | |||
Net credit sales | = | 560000 | |||
Average accounts receivable | = | 70000 | |||
Accounts receivable turnover ratio | = | 560000/70000 | |||
Accounts receivable turnover ratio | = | 8 times | |||
Days in receivable | = | 365/accounts receivabe turnover ratio | |||
Days in receivable | = | 365/8 | |||
Days in receivable | = | 46 days |
Part B Que 1: | |||||||
Ans: | |||||||
Quality of company N working capital is more than Company, as a company has high working capital, | |||||||
it has more than enough liquid funds to meet its short-term obligations, Hence company N is having | |||||||
high quality of working capital than company S. | |||||||
I would prefer to sell the RM20000 on a 30days credit to company "S" as they are having more | |||||||
Liquid assets than companny "N"(Acid test ratio is better for Company "S" than Company "N". |
Ratio Question The selected financial data for Sand N Companies are presented at the end of...
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