Ch $04-$Assignment $-$ Analysis of Financial Statements

$3.$ Asset management ratios

Asset management ratios are used to measure how effectively a firm manages its assets, by relating the amount a firm has invested in a particular type of asset $($or group of assets$)$ to the amount of revenues the asset is generating. Examples of asset management ratios include the average collection period $($also called the days sales outstanding ratio$),$ the inventory turnover ratio, the fixed asset turnover ratio, and the total asset turnover ratio.

Consider the following case:

Polk Software Inc. has a quick ratio of $2\mathrm{.}00x,$$$30,825$ in cash, $$17,125$ in accounts receivable, some inventory, total current assets of $$68,500,$ and total current liabilities of $$23,975.$ The company reported annual sales of $$200,000$ in the most recent annual report.

Additionally, the company's cost of goods sold is $75\%$ of sales.

Over the past year, how often did Polk Software Inc. sell and replace its inventory?

$8\mathrm{.}01x$

$7\mathrm{.}30x$

$2\mathrm{.}86x$

$8\mathrm{.}03x$

The inventory turnover ratio across companies in the software industry is $6\mathrm{.}205x.$ Based on this information, which of the following statements is true for Polk Software Inc.?

Polk Softwire Inc. is holding less inventory per dollar of sales compared with the industry average.

Polk Software Inc. is holding more inventory per dollar of sales compared with the industry average.