Cartwright Brothers has the following balance sheet (all numbers are expressed in millions of dollars): Cash 250 Accounts payable 300 Accounts receivable 250 Notes payable 300 Inventories 250 Long-term debt 600 Net fixed assets 1,250 Common stock 800 Total assets 2,000 Total claims 2,000
Cartwright Brothers has the following
Cash 250 Accounts payable 300
Accounts receivable 250 Notes payable 300
Inventories 250 Long-term debt 600
Net fixed assets 1,250 Common stock 800
Total assets 2,000 Total claims 2,000
Cartwright’s average daily sales are $10 million. Currently, Cartwright’s days sales outstanding (DSO) is
well above the industry average of 15. Cartwright is implementing a plan that is designed to reduce its
DSO to 15 without reducing its sales. If successful the plan will free up cash, half of which will be used
to reduce notes payable and the other half will be used to reduce accounts payable. What will be the
current ratio if Cartwright fully succeeds in implementing this plan?
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