Question

E13-8 Computing and Interpreting Liquidity Ratios (LO 13-4, LO 13-5) Trim Corporation is the largest uniform supplier in North America. Selected information from its annual report follows. For the 2016 fiscal year, the company reported sales revenue of $6.1 billion and Cost of Goods Sold of $4.3 billion. Fiscal Year 2016 2015 Balance Sheet (amounts in millions) Cash and Cash Equivalents $540 $430 Accounts Receivable, net 860 810 Inventories 330 340 Prepaid Rent and Other Current Assets 795 660 Accounts Payable 210 190 Salaries and Wages Payable 520 520 Notes Payable (short-term) 116 Other Current Liabilities 320 28 28 Required: Assuming that all sales are on credit, compute the following ratios for 2016. (Round your answers to 2 decimal places.) Current Ratio Inventory Turnover Ratio Accounts Receivable Turnover Ratio

Answer 1

Here,

Current assets = 540 + 860 + 330 + 795 = $2525

Current liabilities = 210 + 520 + 116 + 28 = $874

• Current ratio = current assets/current liabilities

= 2525/874

= 2.89

• Inventory turnover ratio

    = cost of goods sold/average inventories

= 4300 millions/{(330 + 340)/2}

= 4300/335

= 12.84

• Accounts receivable turnover ratio

= Net credit sales/average accounts receivables

= 6100 millions/{(860 + 810)/2}

= 6100/836

= 7.30