A firms balance sheets for the last two years are as follows: Sales in 20X1 were $250,000.
Question:
Sales in 20X1 were $250,000. Sales in 20X2 were $250,000.
a. Based solely on the current ratio and the quick ratio, has the firms liquidity position deteriorated or improved?
b. Without doing a calculation, has days sales outstanding (receivables turnover) improved? How do you know?
c. Without doing a calculation, has inventory turnover deteriorated? How do you know?
d. If the firm earned $5,000 during 2012, what proportion of those earnings were distributed?
YEAR 20X1 Liabilities and Equity Assets Cash $19,000 Accounts payable $12,000 Accruals 10,000 Current bank note Accounts receivable 11,000 10,000 20,000 Long-term debt Inventory 32,000 Plant and equipment Common stock 50,000 14,000 Retained earnings 22,000 $100,000 $100,000 YEAR 20X2 Liabilities and Equity Assets Cash $2,000 Accounts payable $12,000 Accruals 10,000 Accounts receivable 28,000 Current bank note 30,000 Inventory 20,000 Long-term debt 10,000 Plant and equipment 50,000 Common stock 14,000 Retained earnings 24,000 $100,000 $100,000
Step by Step Answer:
In this problem sales are the same in both years This permits the student to draw conclu...View the full answer
Basic Finance An Introduction to Financial Institutions, Investments and Management
ISBN: 978-1285425795
11th Edition
Authors: Herbert B. Mayo
Related Video
Inventory turnover is a key metric that helps businesses evaluate the efficiency of their operations. A high turnover ratio is generally considered positive, indicating that the company is effectively selling its inventory and making efficient use of its resources. On the other hand, a low turnover ratio may indicate issues such as overstocking or slow sales and may require further examination to identify and address the underlying causes. Businesses use this ratio to make decisions about inventory levels, production schedules, and pricing strategies. It also helps businesses to identify areas where they may need to make improvements, such as reducing lead times for production or optimizing sales and marketing efforts. Additionally, inventory turnover is used by investors and analysts as a key performance indicator to evaluate the financial health and growth potential of a company.
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