Explanation Risk Ratios: Risk ratios are the metrics used to evaluate the liquidity, capabilities, profitability, and overall performance of a company. Receivables turnover ratio: This is the ratio which analyzes the number of times accounts receivables is collected and converted into cash during the period. This ratio gauges the efficacy of collecting receivables. Larger the ratio indicates that the company has more efficient in collecting receivables. This ratio is determined by dividing credit sales and average accounts receivable. It is calculated by using the following formula: Receivables turnover ratio = Net Credit sales Average Accounts Receivables × 100 Average days to collect accounts receivable (average collection period): This ratio measures the number of times receivables are collected in the period. This ratio analyzes the period receivables are outstanding. So, this ratio also gauges the efficacy of collecting receivables. Lower the ratio, more efficient the collection of receivables. Average days to sell inventory (average days in inventory): This ratio analyzes the period from the time inventory is acquired, to the period it is sold, in the period. This ratio measures the period inventory is held with the company. So, this ratio also gauges the efficacy of inventory management. Lower the ratio, more efficient the inventory management Inventory turnover: This is the ratio which analyzes the number of times inventory is sold during the period. This ratio gauges the efficacy of inventory management. Larger the ratio indicates that the company has more efficient the inventory management. Current ratio : The financial ratio which evaluates the ability of a company to pay off the debt obligations which mature within one year or within completion of operating cycle is referred to as current ratio. This ratio assesses the liquidity of a company. Acid-test ratio: The financial ratio which evaluates the ability of a company to pay off the instant debt obligations is referred to as quick ratio. Quick assets are cash, marketable securities, and accounts receivables. This ratio assesses the short-term liquidity of a company. Debt to Asset Ratio: Debt to asset ratio is the ration between total asset and total liability of the company. Debt ratio reflects the finance strategy of the company. It is used to evaluate company’s ability to pay its debts. Higher debt ratio implies the higher financial risk. Times interest earned ratio: This financial metric gauges the company’s capability to pay the interest expense during a year. This ratio is also called as coverage ratio because this ratio analyzes the risk of the company to pay interest expense, at times of low earnings Calculate the given risk ratios for VG Systems for 2021 as follows: 1. Calculate the receivables turnover ratio for VG Systems for 2021: Receivables turnover ratio = Net Credit sales Average Accounts Receivables = $ 3 , 086 , 000 ( $ 70 , 000 + $ 91 , 000 ) 2 = $ 3 , 086 , 000 $ 80 , 500 = 38.3 times 2. Calculate the average collection period for VG Systems for 2021: Average collection period = 365 Days Receivables turnover ratio = 365 Days 38.3 times = 9.5 days 3. Calculate the inventory turnover ratio for VG Systems for 2021: Inventory turnover ratio = Cost of Goods Sold Average Inventory = $ 1 , 960 , 000 ( $ 145 , 000 + $ 115 , 000 ) 2 = $ 1 , 960 , 000 $ 130 , 000 = 15

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Chapter 12 Solutions

FINANCIAL ACCT(LOOSELEAF)>CUSTOM<-W/COD

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Ch. 12 - Prob. 11SSQ Ch. 12 - Prob. 12SSQ Ch. 12 - Prob. 13SSQ Ch. 12 - Prob. 14SSQ Ch. 12 - Prob. 15SSQ Ch. 12 - Prob. 1AE Ch. 12 - Prob. 2AE Ch. 12 - Prob. 1RQ Ch. 12 - Prob. 2RQ Ch. 12 - Prob. 3RQ Ch. 12 - Prob. 4RQ Ch. 12 - Prob. 5RQ Ch. 12 - Prob. 6RQ Ch. 12 - Prob. 7RQ Ch. 12 - Prob. 8RQ Ch. 12 - Prob. 9RQ Ch. 12 - Prob. 10RQ Ch. 12 - Prob. 11RQ Ch. 12 - Prob. 12RQ Ch. 12 - Prob. 13RQ Ch. 12 - Prob. 14RQ Ch. 12 - Prob. 15RQ Ch. 12 - Prob. 16RQ Ch. 12 - Prob. 17RQ Ch. 12 - Prob. 18RQ Ch. 12 - Prob. 19RQ Ch. 12 - Prob. 20RQ Ch. 12 - Prob. 1BE Ch. 12 - Prepare horizontal analysis (LO12-2) BE12-2 Using...Ch. 12 - Prob. 3BE Ch. 12 - Prob. 4BE Ch. 12 - Prob. 5BE Ch. 12 - Prob. 6BE Ch. 12 - Prob. 7BE Ch. 12 - Prob. 8BE Ch. 12 - Prob. 9BE Ch. 12 - Prob. 10BE Ch. 12 - Prob. 11BE Ch. 12 - Prob. 12BE Ch. 12 - Prob. 13BE Ch. 12 - Prob. 14BE Ch. 12 - Prob. 15BE Ch. 12 - Prob. 1E Ch. 12 - Prob. 2E Ch. 12 - Prob. 3E Ch. 12 - Prob. 4E Ch. 12 - Prob. 5E Ch. 12 - Prob. 6E Ch. 12 - Prob. 7E Ch. 12 - Prob. 8E Ch. 12 - Prob. 9E Ch. 12 - Prob. 10E Ch. 12 - Prob. 11E Ch. 12 - E12-12 LeBron’s Bookstores has two divisions:...Ch. 12 - Prob. 13E Ch. 12 - Prob. 14E Ch. 12 - Prob. 15E Ch. 12 - Prob. 1PA Ch. 12 - Prob. 2PA Ch. 12 - P12-3A The balance sheets for Sports Unlimited for...Ch. 12 - Prob. 4PA Ch. 12 - Prob. 5PA Ch. 12 - Prob. 6PA Ch. 12 - Prob. 1PB Ch. 12 - Prob. 2PB Ch. 12 - Prob. 3PB Ch. 12 - Prob. 4PB Ch. 12 - P12-5B Data for The Athletic Attic are provided in...Ch. 12 - Prob. 6PB Ch. 12 - Prob. 1AP Ch. 12 - Prob. 2AP Ch. 12 - Prob. 3AP Ch. 12 - Prob. 4AP Ch. 12 - Ethics AP12-5 After years of steady growth in net...Ch. 12 - Prob. 7AP Ch. 12 - Prob. 8AP

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