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1.
Compute the turnover, liquidity, and solvency ratios for the current year of Company T.
1.
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Answer to Problem 4AP
Turnover, liquidity, and solvency ratios for the current year of Company T are as follows:
Ratios or percentages | Result |
Turnover Ratios | |
Total asset turnover | 0.55 |
Fixed asset turnover | 1.10 |
Receivable turnover ratio | 1.59 |
Inventory turnover ratio | 1.65 |
Liquidity Ratios | |
2.59 | |
Quick ratio | 2.01 |
Cash ratio | 1.15 |
Solvency Ratios | |
Debt-to-equity ratio | 0.67 |
Cash coverage ratio | 3.84 |
Times interest earned ratio | 5.50 |
Table (1)
Explanation of Solution
Determine the ratios of Company T as given below:
Ratios | Formula | Calculation | Result | |
Turnover Ratios | ||||
Total asset turnover | 0.55 | |||
Fixed asset turnover | 1.10 | |||
Receivable turnover ratio | 1.59 | |||
Inventory turnover ratio | 1.65 | |||
Liquidity Ratios | ||||
Current ratio | 2.59 | |||
Quick ratio | 2.01 | |||
Cash ratio | 1.15 | |||
Solvency Ratios | ||||
Debt-to-equity ratio | 0.67 | |||
Cash coverage ratio | 3.84 | |||
Times interest earned ratio | 5.50 |
Table (2)
Working Note 1: Determine the amount of average total assets:
Working Note 2: Determine the amount of average net fixed assets.
Working Note 3: Determine the amount of net credit sales.
Working Note 4: Determine the amount of average net receivables.
Working Note 5: Determine the amount of average inventory.
Working Note 6: Determine the amount of current assets.
Working Note 7: Determine the amount of current liabilities.
Working Note 8: Determine the amount of quick assets.
Working Note 9: Determine the amount of total liabilities.
Working Note 10: Determine the amount of total stockholders’ equity.
2.
Write a comment on the turnover ratios for the current year of Company T.
2.
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Explanation of Solution
From Table (1), the results reveal that the average collection period and the average days to sell inventory is very long. Company T takes 229.56 days
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Chapter 13 Solutions
Financial Accounting
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