Chapter 9, Problem P9.41BPGB

Using ratio data to evaluate a company’s financial position
Leaming Objective 5
1. Days’ sales in receivables (2018) 18 days
The comparative ?nancial statements of Newton Cosmetic Supply for 2018, 2017 and 2016 include the data shown here:

	2018	2017	2016
Balance sheet—partial
Current Assets:
Cash	$ 80,000	$50,000	$20,000
Short-term investment	150,000	170,000	125,000
Accounts Receivable, Net	310,000	260,000	220,000
Merchandise Inventory	360,000	335,000	330,000
Prepaid Expenses	50,000	30,000	35,000
Total Current Assets	950,000	345,000	740,000
Total Current Liabilities	530,000	630,000	670,000
Income statement—partial
Net Sales (all on account)	5,850,000	5,110,000	425,000

Requirements

1. Compute these ratios for 2018 and 2017:
a. Acid-test ratio (Round to two decimals.)
b. Accounts receivable turnover (Round to two decimals.)
c. Days‘ sales in receivables (Round to the nearest whole day.)
2. Considering each ratio individually, which ratios improved from 2017 to 2018 and which ratios deteriorated? ls the trend favorable or unfavorable for the company?