Based on the ratios below, which of the two companies is most liquid? Assume that both companies have approached you seeking a six-month (short-term) loan in the amount of 30% of the respective company’s current assets. You have but one loan to give. To which company do you grant the loan? Please discuss each ratio. COMPANY 1 (Data from left to right: 2018, 2019) Accounts receivable turnover =Net Credit Sales/ Average Debtors =6643051 / 58752 =113.07 =6084766 / 71649 =84.92 Average Days to collect= 365 / Accounts receivable turnover =365 / 113.07= 3.22 365 / 84.92= 4.29 Inventory Turnover= COGS / Average Inventory = 3868119 / 954183 =4.05 =3559158 / 752562 =4.73 Average Inventory Period= 365 / Inventory Turnover = 365 / 4.05= 90.12 365 / 4.73 = 77.16 Company 2 (Data years from left to right: 2018, 2019, 2020) Accounts Receivable turnover Ratio = ( Net Credit sales / Average Accounts receivable ) From table A (5/7) 184.15 143.98 129.22 Avg Days to collect receivable Ratio = (365 / Avg Receivable turnover ratio) From table B ( 365 Days/4) 1.98 2.35 2.82 Inventory Turnover ratio = ( Cost of goods sold / Avg Inventory ) From table A ( 4/8) 2.815 2.869 2.830 Average Days to sell the inventories = (Inventory / Cost of sales)*365 days From table A (3/4)* 365 days 127.20 130.00 126.23
Based on the ratios below, which of the two companies is most liquid? Assume that both companies have approached you seeking a six-month (short-term) loan in the amount of 30% of the respective company’s current assets. You have but one loan to give. To which company do you grant the loan? Please discuss each ratio. COMPANY 1 (Data from left to right: 2018, 2019) Accounts receivable turnover =Net Credit Sales/ Average Debtors =6643051 / 58752 =113.07 =6084766 / 71649 =84.92 Average Days to collect= 365 / Accounts receivable turnover =365 / 113.07= 3.22 365 / 84.92= 4.29 Inventory Turnover= COGS / Average Inventory = 3868119 / 954183 =4.05 =3559158 / 752562 =4.73 Average Inventory Period= 365 / Inventory Turnover = 365 / 4.05= 90.12 365 / 4.73 = 77.16 Company 2 (Data years from left to right: 2018, 2019, 2020) Accounts Receivable turnover Ratio = ( Net Credit sales / Average Accounts receivable ) From table A (5/7) 184.15 143.98 129.22 Avg Days to collect receivable Ratio = (365 / Avg Receivable turnover ratio) From table B ( 365 Days/4) 1.98 2.35 2.82 Inventory Turnover ratio = ( Cost of goods sold / Avg Inventory ) From table A ( 4/8) 2.815 2.869 2.830 Average Days to sell the inventories = (Inventory / Cost of sales)*365 days From table A (3/4)* 365 days 127.20 130.00 126.23
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Based on the ratios below, which of the two companies is most liquid? Assume that both companies have approached you seeking a six-month (short-term) loan in the amount of 30% of the respective company’s current assets. You have but one loan to give. To which company do you grant the loan? Please discuss each ratio.
COMPANY 1
(Data from left to right: 2018, 2019)
|
Accounts receivable turnover =Net Credit Sales/ Average Debtors |
=6643051 / 58752 =113.07 | =6084766 / 71649 =84.92 |
| Average Days to collect= 365 / Accounts receivable turnover | =365 / 113.07= 3.22 | 365 / 84.92= 4.29 |
| Inventory Turnover= COGS / Average Inventory | = 3868119 / 954183 =4.05 | =3559158 / 752562 =4.73 |
| Average Inventory Period= 365 / Inventory Turnover | = 365 / 4.05= 90.12 |
365 / 4.73 = 77.16 |
Company 2
(Data years from left to right: 2018, 2019, 2020)
|
Accounts Receivable turnover Ratio = ( Net Credit sales / Average Accounts receivable ) From table A (5/7) |
184.15 | 143.98 | 129.22 | |
|
Avg Days to collect receivable Ratio = (365 / Avg Receivable turnover ratio) From table B ( 365 Days/4) |
1.98 | 2.35 | 2.82 | |
|
Inventory Turnover ratio = ( Cost of goods sold / Avg Inventory ) From table A ( 4/8) |
2.815 | 2.869 | 2.830 | |
|
Average Days to sell the inventories = (Inventory / Cost of sales)*365 days From table A (3/4)* 365 days |
127.20 | 130.00 | 126.23 |
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