Question

GS&H had the following information on its financial statements for the fiscal years ended December 31. All figures are in millions of Canadian dollars. Current assets Current liabilities Net sales Accounts receivable - gross Allowance for doubtful accounts 2023 $1.634 629 3,940 1,456 168 2022 $6,036 2.181 10.342 934 34 2021 $3,850 1,276 5.778 746 17 2020 $1,495 980 4,404 565 14 Calculate the following for the company: (1) (2) (3) current ratio for 2020 through 2023 receivable turnover ratio for 2021 through 2023 average collection period for 2021 through 2023

Answer 1

Answer :

	2023	2022	2021	2020
Current ratio	2.60 : 1	2.77 : 1	3.02 : 1	1.53 : 1
Receivable turnover ratio	3.60 times	6.35 times	4.51 times	-
Average collection period	101 days	57 days	81 days	-

Working Notes :

1. Current ratio = Current Assets / Current liabilities

2023 Current ratio = $1,634 / $629 = 2.60

2022 Current ratio = $6,036 / $2,181 = 2.77

2021 Current ratio = $3,850 / $1,276 = 3.02

2020 Current ratio = $1,495 / $980 = 1.53

2. Receivable turnover ratio = Net Sales / Average net accounts receivable

2023

Average net accounts receivable = (1,456 - 168 + 934 - 34) / 2 = $1,094

Receivable turnover ratio = $3,940 / $1,094 = 3.60 times

2022

Average net accounts receivable = (934 - 34 + 746 - 17) / 2 = $1,629

Receivable turnover ratio = $10,342 / $1,629 = 6.35 times

2021

Average net accounts receivable = (746 - 17 + 565 - 14) / 2 = $1,280

Receivable turnover ratio = $5,778 / $1,280 = 4.51 times

3. Average collection period = 365 days / Receivable turnover ratio3.60 times

2023 Average collection period = 365 days / 3.60 times = 101 days

2022 Average collection period = 365 days / 6.35 times = 57 days

2021 Average collection period = 365 days / 4.51 times = 81 days

b.

1. Current ratio declines from 2022 to 2023.

2. Current ratio improves from 2020 to 2021.

3. Receivable turnover declines from 2022 to 2023.

4. Receivable turnover improves from 2021 to 2022.

5. Collection period declines from 2021 to 2022.