LO14-5, LO14-7, LO14-8 PROBLEM 14.9B Ratios: Evaluation of Two Companies Critical Thinking Cases 14 06 2 Shown below are selected financial data for THIS Star, Inc., and THAT Star, Inc., at the end of the current year: Net credit sales Cost of goods sold Cash Accounts receivable (net) Inventory Current liabilities Instructions For each of the two companies, compute the following: 1. Working capital. 2. Current ratio. a. b. THIS Star, Inc. Assume that the year-end balances shown for accounts receivable and for inventory also represent the average balances of these items throughout the year. THAT Star, Inc. $900,000 $840,000 700,000 640,000 95,000 47,000 100,000 90,000 50,000 120,000 5. 160,000 110,000 679 3. Quick ratio. 4. Number of times inventory turned over during the year and the average number of days required to turn over inventory (round computation to the nearest day). Number of times accounts receivable turned over during the year and the average number of days required to collect accounts receivable (round computation to the nearest day). 6. Operating cycle. From the viewpoint of a short-term creditor, comment on the quality of each company's work- ing capital. To which company would you prefer to sell $50,000 in merchandise on a 30-day open account? C

LOI4-5, LOI4-7, LOIA-B PROBLEM 14.9B Ratios: Evaluation of Two Companies Shown below are selected tinancial data for THIS Star, Inc, and THAI Star, Inc, at the end of the current year: Assume that the year-end balances shown for accounts receivable and for inventory also represent the average balances of these items throughour the year. Instructions a. For each of the two companies, compute the following: 1. Working capital. 2. Current ratio. Critcal Thinking Cases 679 3. Quick ratio. 4. Number of times inventory turned over during the jear and the average number of days required to tum over imentory (round compatation to the nearest day). 5. Number of times accounts receivable turned over during the year and the uverage number of days required to collect aceounts receivable (round computation to the nearest day). 6. Operating cycle, b. From the viewpoint of a short-term cteditor, comment on the quality of each company s working capital. To which company would you prefer to sell $50,000 in merchandise on a 30 -day open accoun