1 EC-18 Computing key ratios 3 The financial statements of Valerie's Natural Foods include the following items: Current Year Preceding Year $ Balance Sheet: Cash Short-term Investments Net Accounts Receivable Merchandise Inventory Prepaid Expenses Total Current Assets Total Current Liabilities Income Statement: Net Credit Sales Cost of Goods Sold 16,000 19,000 60,000 78,000 17,000 190,000 136,000 $ 26,000 28,000 92,000 74,000 6,000 226,000 82,000 $476,000 312,000 Compute the following ratios for the current year: b. Current ratio Cash ratio Acid-test ratio Inventory turnover Days' sales in inventory Days' sales in receivables Gross profit percentage Ratio Solution Current ratio Cash ratio b. c. Acid-test ratio Formula Calculation total current assets/total current liabilities (cash + cash equivalents) total current liabilities (cash + short-term investments + net current receivables) total current liabilities cost of goods sold average merchandise inventory 365 days/inventory turnover net credit sales/average net accounts receivables 365 days/accounts receivable turnover ratio gross profit net sales revenue d. e. f. Inventory turnover Days' sales in inventory Days' sales in receivables g. Gross profit percentage