Question

Requirement 1. Calculate Algonquin's acid-test ratio for 2018. (Round to two decimals.) Determine y aver i Requirements hos - X vo deci Calculate Algonquin's acid-test ratio for 2018. (Round to two decimals.) Determine whether Algonquin's acid-test ratio improved or deteriorated from 2017 to 2018. How does Algonquin's acid-test ratio compare with the industry average of 0.80? 2. Calculate Algonquin's accounts receivable turnover ratio. (Round to two decimals.) How does Algonquin's ratio compare to the industry average accounts receivable turnover of 10? 3. Calculate the days' sales in receivables for 2018. (Round to the nearest day.) How do the results compare with Algonquin's credit terms of net 30? Print Done parts remaining Clear All

Answer 1

1	Acid Test Ratio = (Current Assets excluding Inventory )/ Current Liabilities
	In given Question,
		Current Assets excluding inventory are:
				2018	2017
		Total Current Assets		283000	288000
		Less: Inventory		196000	192000
		Current Assets excluding inventory are:		87000	96000	A
		Total Current liabilities		112000	114000	B
		Acid test ratio		0.78	0.84	(A/B)
	Acid test ratio Algonquin's is more than industry average in 2017 which shows that company has good liquidity position than required by industry. However in 2018, company liquidiy position gets weaker with a small change but stills its hovers around industry average. Overall we can say company is maintaining good liquidity position.
2	Accounts Receivable Turnover = Annual Credit Sales / Accounts Receivable
				2018	2017
	Annual Credit Sales			700600	733000
	Accounts Receivables (Net)			55000	69000
		AR Turnover ratio		12.74	10.62
	AR Turnover ratio shows that no. of times during the period cash collection cycle is going on. In both years company has more AR t/o ration than industry average which shows a strong liquidity position.
3	Days sales in receivable = Accounts Receivable / Total Credit Sale * 365 days
				2018	2017
	Accounts Receivables (Net)			55000	69000
	Annual Credit Sales			700600	733000
	DAYS SALES IN RECEIVABLE			28.65	34.36
	Days sales in receivable is decreased in 2018 which is a good sign of maintaining and improving liquidity position. Also when it compares with industry average it shows a steady improvement.