Question

A Ă BI U ON A A. .. VEYA Find Q4. The financial statements of NYC Inc. include the following items: Current Year Preceding Year Ballince Sheet: Cash Short-term investments Net receivables Inventory Prepaid expenses Total current assets Total current liabilities Income Statement: Net credit sales Cost of goods sold. $ 17,000 11,000 64,000 77.000 16,000 $185,000 $111.000 $ 22,000 26,000 73,000 71,000 8,000 $200,000 $ 91,000 $654,000 327,000 Requirement: Compute the following ratios for the current year: a) Current ratio b) Accounts receivable tumover c) Quick (acid-test) ratio d) Days' sales in receivables c) Inventory turnover f) Summarize the results of your analysis of the following financial statement data in a written report TI 3 F7 F8 F9 F10 F11 F12 Priser Inser

Answer 1

a) Current ratio = Current assets / Current liabilities

= 185000 / 111000

= 1.67 times

b) Accounts receivable turnover ratio = Net credit sales / Average accounts receivable

= 654000 / 68500

= 9.55 times

Here, Average accounts receivable = (opening receivables+closing receivables) / 2

= (64000 + 73000) / 2

= 68500

c) Quick ratio = Quick assets / Current liabilities

= (Current assets - Inventory - Prepaid expenses) / Current liabilities

= (185000 - 77000 - 16000) / 111000

= 92000 / 111000

= 0.89 times

d) Day's sale in receivable = (Average accounts receivable / Net credit sales) * 365

= ( 68500 / 654000) * 365

= 38.23 days

e) Inventory turnover ratio = Cost of goods sold / Average inventory

= 327000 / 74000

= 4.42 times

Here, Average inventory = (Opening inventory + closing inventory) / 2

= (71000 + 77000) / 2

= 74000

f) As per the analysis of the ratios above, we can conclude that the business is running healthy. It indicates good short term financial strength.