Computing and Interpreting Selected Liquidity Ratios
Double West Suppliers (DWS) reported sales for the year of $300,000, all on credit. The average gross profit percentage was 40 percent on sales. Account balances follow:
| Beginning | Ending |
Accounts receivable (net) | $45,000 | $55,000 |
Inventory | 60,000 | 40,000 |
Required:
1.Compute the turnover ratios for accounts receivable and inventory (round to one decimal place).
2.By dividing 365 by your ratios from requirement 1, calculate the average days to collect receivables and the average days to sell inventory (round to one decimal place).
3.Explain what each of these ratios and measures mean for DWS.
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