(Determining the effects of transactions on ratios, LO 2) You have been provided with the following information about Everell Inc. (Everell).

Required:

a. Calculate the accounts receivable, inventory, and accounts payable turnover ratios for 2004 through 2006.

b. Calculate the average collection period of accounts receivable, average number of days inventory on hand, and average payment period for accounts payable for 2004 through 2006.

c. Determine Everell’s cash lag for 2004 through 2006.

d. Interpret the results you obtained in parts

(a) through (c). What do these results tell you about Everell’s liquidity over the last three years?

e. What are some possible explanations for the results?

f. Suppose you are a banker who Everell’s management approached about an expanded line of credit. How would the results you obtained in parts (a)
through

(c) affect your decision? Explain.

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Accounts receivable Inventory Accounts payable Revenue Cost of sales 2003 2004 $ 150,000 $ 157,500 $ 165,375 100,000 105,000 110,250 2005 $ 173,644 115,763 2006 75,000 78,750 82,688 86,822 1,000,000 1,050,000 1,155,000 1,270,500 550,000 577,500 641,025 711,538