Given the information below, for 2013 and 2014, calculate the current ratio, qui
ID: 2473818 • Letter: G
Question
Given the information below, for 2013 and 2014, calculate the current ratio, quick ratio, accounts receivable turnover, and collection period. Include both your calculations and a brief explanation (3-4 sentences) to explain the ratio and what the resulting change from 2013 to 2014 might mean for the company.
Note: The term income from operations is equivalent to the term sales.
Column1 2014 2013 Cash 30,000 40,000 Short-Term Investments 37,000 18,000 Accounts Receivable, Net 120,000 140,000 Inventory 290,000 320,000 Prepaid Expenses 7,000 10,000 Total Assets 600,000 750,000 Total Current Liabilities 220,000 200,000 Long-Term Note Payable 150,000 185,000 Income From Operations 145,000 180,000 Interest Expense 22,000 26,000Explanation / Answer
Current ratio of the company has decreased over 2013 due to decrease in current assets as also due to increase in current liabilities
quick ratio of the company has also decreased
Accounts receivable turnover reflects that how many times the debtors revolve during the year while collection period reflects the time taken for the debtors to normally pay for the credit sales
2014 2013 Current Ratio = Current Assets/ Current Liabilities Current Assets = 600,000 750,000 Current Liabilities = 220,000 200,000 Current Ratio 2.73 3.75 Quick Ratio = Quick Asset/ Quick Liabilities Quick Asset = Current Asset - Inventory 310,000 430,000 Quick Liabilities = 220,000 200,000 Quick Ratio 1.41 2.15 Accounts Receivable Turnover = Credit sales/ Accnts receivable 1.21 1.29 Income from Operations 145,000 180,000 Accounts Receivable 120,000 140,000 Receivable Collection Period= 365/Turnover ratio 302 284Related Questions
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