Chapter 4, Problem 4.26E

Evaluating efficiency of asset management

• LO4–10

The 2018 income statement of Anderson Medical Supply Company reported net sales of $8 million, cost of goods sold of $4.8 million, and net income of $800,000. The following table shows the company’s comparative balance sheets for 2018 and 2017:

		($ in thousands)
	2018	2017
Assets
Cash	$300	$380
Accounts receivable	700	500
Inventory	900	700
Property, plant, and equipment (net)	2,400	2,120
Total assets	$4,300	$3,700
Liabilities and Shareholders’ Equity
Current liabilities	$960	$830
Bonds payable	1,200	1,200
Paid-in capital	1,000	1,000
Retained earnings	1,140	670
Total liabilities and shareholders’ equity	$4,300	$3,700

Some industry averages for Anderson’s line of business are

Inventory turnover	5 times
Average collection period	25 days
Asset turnover	1.8 times

Required:

1. Determine the following ratios for 2018:

a. Inventory turnover

b. Receivables turnover

c. Average collection period

d. Asset turnover

2. Assess Anderson’s asset management relative to its industry.