Chapter 9, Problem S9.13SE

To determine

Acid-test ratio:

Acid-test ratio is a liquidity ratio which measures a company’s ability to cover its current liabilities with acid liquid assets. Liquid assets are the assets which can be converted into cash within short period of time.

Accounts receivable turnover ratio:

Accounts receivable turnover ratio is an activity ratio which measures a company’s ability in utilizing its current assets. It is calculated by dividing the net credit sales during the year by the average accounts receivable.

Day’s sales in receivables:

It is an estimation of average collection period. It is computed by dividing the average accounts receivable by the average sales per day.

:

a. Acid-test ratio

b. Accounts receivable turnover ratio

c. Day’s sales in receivables

Evaluate each ratio value as strong or weak.