Rinsemator Group, has a quick ratio of 2.00x, $32,175 in cash, $17,875 in accoun
ID: 2729020 • Letter: R
Question
Rinsemator Group, has a quick ratio of 2.00x, $32,175 in cash, $17,875 in accounts receivable, some inventory, total current assets of $71,500, and total current liabilities of $25,025. The company reported annual sales of $100,000 in the most recent annual report. Over the past year, how often did Rinsemator Group, sell and replace its inventory? 0.35X 4.66x 0.39X 5.13x The inventory turnover ratio across companies in the industry is 5.13x. Based on this information, which of the following statements is true for Rinsemator Group.? Rinsemator Group, is holding less inventory per dollar of sales compared to the industry average. Rinsemator Group, is holding more inventory per dollar of sales compared to the industry average. You are analyzing two companies that manufacture electronic toys -Like Games Inc. and Our Play Inc. Like Games was launched eight years ago, whereas Our Play is a relatively new company that has been in operation for only the past two years. However, both companies have an equal market share with sales of $100,000 each. You've gathered up company data to compare Like Games and Our Play. Last year, the average sales for industry competitors was $255,000. As an analyst, you want to make comments on the expected performance of these two companies in the coming year. You've collected data from the companies' financial statements. This information is listed as follows: Using this information, complete the following statements to include in your analysis. Our Play has days of sales tied up in receivables, which is much time to collect cash from its customers than it takes Like Games. lower higher than the industry average. It takes Our Play Like Games's fixed assets turnover ratio is than that of Our Play. This is because Like Games was formed eight years ago, so the acquisition cost of its fixed assets is recorded at historic values when the company bought its assets and has been depreciated since then. Assuming that fixed assets prices (not book values) rose over the past six years due to inflation, Our Play paid a amount for its fixed assets. The average total assets turnover in the electronic toys industry is 1.09x, which means that $1.09 of sales is being generated with every dollar of investment in assets. A total assets turnover ratio indicates greater efficiency. Both companies' total assets turnover ratios are than the industry average.Explanation / Answer
Answer is 4.66X
For the calculation of how often did Rinsemator Group replace its inventory, We need to calculate Inventory Turnover Ratio.
Inventory Turnover Ratio = Sales / *Average Inventory
= 100,000 21,450
= 4.66X
*Computation of Average inventory
Quick Ratio = Quick Assets / Current Liabilities
2 = (Current Assets – Inventory) / 25,025
2 X 25,025 = (71,500 – Inventory)
50,050 = 71,500 – Inventory
Inventory = 71,500 – 50,050
= 21,450
If the inventory turnover ratio across companies in the industry is 5.13x then
Rinsemator Group, is holding more inventory per dollar of sales compared to the industry average.
3. Answer
1. For answer the question we need to calculate Receivable Turnover Ratio and Average collection period of Receivable.
For Our Play:
Receivable Turnover Ratio = Sales / Account Receivable
= 100,000 / 3,900
= 25.64
Average collection Period = 365 Days / Receivable Turnover Ratio
= 365 / 25.64
= 14 Days
For Industry average:
Receivable Turnover Ratio = Sales / Account Receivable
= 255,000 / 3,850
= 66.23
Average collection Period = 365 Days / Receivable Turnover Ratio
= 365 / 66.23
= 5.51 or 6 Days (Approx.)
Answer
1.Our Play has 14 days of sales tied up in receivables, which is higher than the industry average. It takes Our Play 14 days’ time to collect cash from its customers than it takes like Games.
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