Question

Refer the following table. 2015 $ 37 49 Airspace Technologies Inc. Comparative Balance Sheet Information November 30 (millions of $) 2017 2016 Cash $ 74 $ 25 Accounts receivable (net) 123 61 Inventory 205 241 Prepaid rent 85 49 Plant and equipment (net) 850 833 Accounts payable 109 66 Accrued liabilities 133 Income tax payable 30 18 Preferred shares 133 133 Common shares 253 253 Retained earnings 611 567 201 37 829 56 90 133 253 609 Airspace Technologies Inc. Income Statement For Year Ended November 30, 2017 (millions of $) 2017 Net sales $ 1,460 Cost of goods sold 2016 $ 1,244 449 521 $ 939 Gross profit Operating expenses: Depreciation expense Other expenses $ $ $ 74 795 74 350 506 Total operating expenses 580 424 $ 359 $ 371 Profit from operations Interest expense Income tax expense 43 33 Profit $ 266 $ 286

Answer 1

Current ratio = Current asset / current liabilities ( Amounts are all in millions

2016 - 376/ 217 =1.73:1

2017 - 487/ 236 = 2.06: 1

As 2017 current ratio is more than 2016, its favorable as there is more current asset for each $ 1 on current liabilities

Quick ratio = (current asset - inventory) / current liabilities

2016 = 135/217 =0.62 : 1

2017 = 282 / 236 =1:19 :1

As 2017 quick ratio is more than 2016, its favorable as there is more current asset for each $ 1 on current liabilities

Accounts receivable turn over = credit sales / average accounts receivable

Here net sales is taken instead of credit sales, as the figure is not mentioned in the question

2016 = 1244/ 55 = 22.62 times

2017 = 1460 / 92 = 15.87 times

in unfavorable as higher the ratio its is favorable in 2016 we have a higher ratios

Days' sales uncollected = Average accounts receivable / total credit sales * 365

2016  = 55/1244*365 = 16.14 Days

2017 = 92/1460 * 365 = 23 Days

unfavorable as in 2017 it take more days to collect amount form accounts receivable

Inventory turn over = cost of goods sold / average stock

2016 = 449/ 221 = 2.02

2017 = 521/223 = 2.34

yes 2017 is favorable as the ratio for 2017 is higher which shows you are able to sell your stock

Days' sales in inventory = closing inventory/ cost of goods sold * 365

2016 = 241/449 * 365 = 195.91 days

2017 = 205/521*365 = 143.63 days

In 2017 it is favorable it takes less number of days to sell your closing stock

Total asset turnover = Net sales / average assets

2016 = 1244 / 1181 =1.05

2017 = 1460 /1273 = 1.15

It favorable as you have more net sales against the average assets, it shows your revenue is more than your assets used.

Accounts payable turnover = Credit purchase / average accounts payable

considering total purchases as credit purchase, credit purchase = cost of goods sold - opening stock + closing stock

2016 = 449 - 201 + 241 = 489 / 61 = 8.02

2017 = 521 - 241 + 205 = 485 / 87.5 = 5.54

its unfavorable as the business is taking more time to pay of your accounts payable

Ratio	2017		2016
Current Ratio	2.06 : 1	:1	1.73 : 1	:1
Quick ratio	1:19 : 1	:1	0.62 : 1	:1
Accounts receivable turn over	15.87	times	22.62	times
Days' sales uncollected	23	days	16.14	days
Inventory turnover	2.34	times	2.02	times
Days' sales in inventory	143.63	days	195.91	days
Total asset turnover	1.15	times	1.05	times
Accounts payable turnover	5.54	times	8.02	times

Ratio	Favorable / Unfavorable
Current Ratio	Favorable
Quick ratio	Favorable
Accounts receivable turn over	Unfavorable
Days' sales uncollected	Unfavorable
Inventory turnover	Favorable
Days' sales in inventory	Favorable
Total asset turnover	Favorable
Accounts payable turnover	Unfavorable

Kindly use the above formula to calculate ratios for each year 2016 and 2017.