Chapter 8, Problem 8.12E

a)

To determine

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 the operating cycle, is referred to as current ratio. This ratio assesses the liquidity of a company.

Formula of current ratio:

$\boxed{\text{Current ratio = }\frac{\text{Current assets}}{\text{Current liabilities}}}$

Accounts receivable turnover:

Accounts receivable turnover is a liquidity measure of accounts receivable in times, which is calculated by dividing the net credit sales by the average amount of net accounts receivables. In other words, it indicates the number of times the average amount of net accounts receivables collected during a particular period.

To identify: Whether Incorporation L’s short-term liquidity position improving or deteriorating in 2014.

(b)

To determine

To identify: Whether changes in turnover ratios affect profitability.

(c)

To determine

To describe: The ways to improve Incorporation L’s receivables and inventory turnover ratio.