
Compute the given ratios for Company C.

Answer to Problem 12E
The ratios of Company C are given below:
Ratios determined for Company C | |
Receivable turnover | 8.98 |
Inventory turnover | 10.74 |
2.06 | |
Cash ratio | 0.81 |
Times interest earned | 9.43 |
Cash coverage ratio | 9.35 |
Table (1)
Explanation of Solution
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 determined by the following formula:
Inventory turnover ratio: Inventory turnover ratio is one of the Assets Turnover ratios. 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. It is calculated as follows:
Current ratio: Current ratio is one of the
Cash ratio: This ratio is used to measure the adequacy of the cash in the business. It is determined by dividing cash and cash euqivalents and current liabilities. It is determined by the following formula:
Times interest earned ratio: Times interest earned ratio quantifies the number of times the earnings before interest and taxes can pay the interest expense. First, determine the sum of income before income tax and interest expense. Then, divide the sum by interest expense. It is determined by the following formula:
Cash coverage ratio: This ratio indicates the relationship between the
Determine the given ratios for Company C:
Ratio | Formula | Calculation | Result |
Receivable turnover | 8.98 | ||
Inventory turnover | 10.74 | ||
Current ratio | 2.06 | ||
Cash ratio | 0.81 | ||
Times interest earned | 9.43 | ||
Cash coverage ratio | 9.35 |
Table (2)
Working Note:
Determine the amount of average net receivables.
Determine the amount of average inventory.
Determine the amount of current assets.
Determine the amount of current liabilities.
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