Using the acid-test ratio and days’ sales in receivables to evaluate a company [10-15 min]...

Using the acid-test ratio and days’ sales in receivables to evaluate a company [10-15 min]

Southside Clothiers reported the following items at September 30, 2012 (last year’s—2011—amounts also given as needed):

Requirement

1. Compute Southside’s (a) acid-test ratio, (b) days’ sales in average receivables for 2012, and (c) accounts receivable turnover ratio. Evaluate each ratio value as strong or weak. Southside sells on terms of net 30.