Explanation Risk Ratios: Risk ratios are the metrics used to evaluate the liquidity, capabilities, profitability, and overall performance of a company. The following are the ratios that evaluate the risk of a company: 1. Receivables turnover ratio: Receivables turnover ratio is mainly used to evaluate the collection process efficiency. It helps the company to know the number of times the accounts receivable is collected in a particular time period. This ratio is determined by dividing credit sales and sales return. It is calculated by using the following formula: Receivables turnover ratio = Net Credit sales Average Accounts Receivables × 100 Calculate the receivables turnover ratio for TA Attic for 2018: Receivables turnover ratio = Net Credit sales Average Accounts Receivables = $ 8 , 900 , 000 ( $ 810 , 000 + $ 790 , 000 ) / 2 = $ 8 , 900 , 000 $ 1 , 600 , 000 / 2 = $ 8 , 900 , 000 $ 80 , 000 = 11.1 times 2. Average collection period: This ratio is used to determine the number of days a particular company takes to collect accounts receivables. Formula: Average collection period = 365 Days Receivables turnover ratio Calculate the average collection period for TA Attic for 2018: Average collection period = 365 Days Receivables turnover ratio = 365 Days 11.1 times = 32.9 days 3. Inventory Turnover Ratio: This ratio is a financial metric used by a company to quantify the number of times inventory is used or sold during the accounting period. Formula: Inventory turnover ratio = Cost of Goods Sold Average Inventory Calculate the inventory turnover ratio for TA Attic for 2018: Inventory turnover ratio = Cost of Goods Sold Average Inventory = $ 5 , 450 , 000 ( $ 1 , 075 , 000 + $ 1 , 405 , 000 ) / 2 = $ 5 , 450 , 000 $ 2 , 480 , 000 / 2 = $ 5 , 450 , 000 $ 1 , 240 , 000 = 4.4 times 4. Average days in inventory: Average days in inventory is determined as the number of days a particular company takes to make sales of the inventory available with them. Formula: Average days in inventory = 365 days Inventory turnover ratio Calculate the average days in inventory for TA Attic for 2018: Average days in inventory = 365 days Inventory turnover ratio = 365 days 4

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ISBN: 9781259307959

Author: J. David Spiceland, Wayne M Thomas, Don Herrmann

Publisher: McGraw-Hill Education

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Chapter 12, Problem 12.4BP

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To Calculate: The given risk ratios for TA Attic for 2018.

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