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Problem - Computation and Evaluation of Activity Ratios
The following data relates to Alaska Products Inc.:
20X5
20X4
Net Credit Sales
$862,000
$760,000
Cost of Goods Sold
470,000
350,000
Cash, Dec. 31
125,000
110,000
Accounts Receivable, Dec. 31
180,000
140,000
Inventory, Dec. 31
70,000
50,000
Accounts Payable, Dec. 31
115,000
108,000
The company is planning to borrow $300,000 via a 90-day bank loan to cover short-term operating needs.
Required -
a. Compute the accounts-receivable and inventory-turnover ratios for 20X5. Alaska rounds all calculations to two decimal places.
b. Study the ratios from part (a) and comment on the company's ability to repay a bank loan in 90 days.
c. Suppose that Alaska's major line of business involves the processing and distribution of fresh and frozen fish throughout the United States. Do you have any concerns about the company's inventory-turnover ratio? Briefly discuss.
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