(L.OBJ. 8) Using the acid-test ratio and days sales in receivables to evaluate a company...

(L.OBJ. 8) Using the acid-test ratio and days sales in receivables to evaluate a company [10-15 min]

West Highland Clothiers reported the following items at August 31, 2012 (amounts in thousands, with last year’s—2011—amounts also given as needed):

Requirement

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