32 Nugent, Inc., has a gross profit margin of 30.87 percent on sales of $14,448,

Question

32 Nugent, Inc., has a gross profit margin of 30.87 percent on sales of $14,448,658 and total assets of $8,644,493. The company has a current ratio of 2.78 times, accounts receivable of $1,755,647, cash and marketable securities of $442,164, and current liabilities of $997,806.


What is Nugent’s level of current assets? $
How much inventory does the firm have? $
What is the inventory turnover ratio? times
What is Nugent’s days’ sales outstanding? days
If management wants to set a target DSO of 30 days, what should Nugent’s accounts receivable be? $

Explanation / Answer

Gross Margin = 30.87%
Sales = 14448658
Assets = 8644493
Current ratio = Current Assets/Current Liabilities = 2.78
Accounts receivable = 1755647
Current liabilities = 997806
Cash and marketable sec. = 442164

(1)
So Current assets = Current liabilities * Current ratio = 997806 * 2.78 = 2773900.68

(2)
Current assets = Cash and marketable sec + accounts receivable + inventory
So inventory = Current assets - Cash and marketable sec - accounts receivable
= 2773900.68 - 442164 - 1755647
= 576089.68

(3)
Inventory tunrover ratio = cost of goods sold/inventory
= [Sales * (1-Gross Margin)]/Inventory
= [14448658*(1-30.87%)]/576089.68
= 17.336

(4)
Assuming all the numbers are for one year
DSO = (accounts receivable)/sales * 365
= 1755647/14448658 * 365
= 44.3509

(5)
if DSO = 30
then accounts receivable = DSO * Sales/365
= 30 * 14448658/365
= 1187560.93

Please rate my answer!
Thanks in advance :)

Related Questions

Navigate

• Browse (All)
• Browse 3
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.