Bill Gerard, the controller for Quick Turn-Around Co., is using final Year 5 fin

Question

Bill Gerard, the controller for Quick Turn-Around Co., is using final Year 5 financial numbers to forecast various ratios for Year 6. The directive from his boss (Kim Sanford, CFO) is to focus on activity ratios, but Gerard would also like to show one high- level profitability ratio in order to focus the follow-up discussion on managing costs and projected profitability. Gerard also needs to be prepared to explain the key drivers of the changes in the ratios from Year 5 to Year 6. Using the information included within the Resources tab, complete the table below for Quick Turn-Around Co Calculate the required amounts identified in column A for Year 6 and enter your associated response in dollars or as a ratio where applicable (rounded to two decimal places) in column B. .For the ratios identified in column A, determine the primary driver for the change in the ratio from Year 5 and enter the reason in column C using the choices from the drop-down menu

Explanation / Answer

1. Calculation Amount Primary driver 2. Inventory conversion period 55.74 days Increase in inventory and COGS by almost the same percentage Receivables collection period 43.28 days The period has reduced as sales have increased and the receiavbles have increased by a lesser percent payables deferral period 44.15 days Accounts payables and COGS have both increased operating cycle 99.03 days Inventory and accounts receivables cash conversion cycle 54.88 days inventory, accounts receivables and accounts payables gross margin ratio 34.02% Net sales and COGS

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