ED-20 Computing key ratios The financial statements of Victory\'s Natural Foods

Question

ED-20 Computing key ratios

The financial statements of Victory's Natural Foods include the following items:

Compute the following ratios for the current year:

a. Current ratio

b. Cash ratio

c. Acid-test ratio
d. Inventory turnover

e. Days' sales in inventory

f. Days' sales in receivable

g. Gross profit percentage (assume all sales are on credit)

*Hint: e. 78 days

Current Year Preceding Year Balance Sheet: Cash $20,000 $24,000 Short-tem investments $18,000 $26,000 Net Accounts Receivable $50,000 $78,000 Merchandise Inventory $70,000 $66,000 Prepaid Expenses $12,000 $10,000 Total current Assets $170,000 $204,000 Total Current Liabilities $129,000 $92,000 Income Statement: Net credit sales $478,000 Cost of Goods Sold $318,000

Explanation / Answer

1)Current Ratio
=current assets/current liability
=170,000/129,000=1.32

2)Quick ratio
=(current assets-inventory)/current liability
=(170,000-70,000)/129,000=0.78

3)Acid test ratio= cash/current liability
=20,000/129,000=0.16

4)Inventory turnover= COGS/ avg Inventory
=318000/(70000+66000)/2
=4.68

5)Days sales inventory outstnading=365/ inventory turnover
=365/4.68=78.05 days

6)Acc rece turnover= Sales/avg acc rece
=478000/(18000+26000)/2=21.73

Days sales receivable outstanding= 365/acc rec turnover
=365/21.73=16.8 days

7)gross margin(%)=gross margin/sales
=(478000-318000)/478000=33.47%

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