Liquidity and Asset Management Ratios Oasis Products Inc has

Liquidity and Asset Management Ratios Oasis Products, Inc. has current liabilities = $10.1 million, current ratio = 1.60 times, inventory turnover ratio = 12.1 times, average collection period = 21 days, and sales = $101 million. What is the value of their cash and marketable securities? (Consider a 365 days a year.)

Solution

Current ratio=Current assets/Current liabilities

Current assets=(1.6*10.1)=$16,160,000

Inventory turnover=Sales/Average inventory

Hence average inventory=(101/12.1)=$8,347,107.438(Approx)

Average collection period=(AR/Sales)*365 days

Hence AR=(101*21/365)=$5,810,958.904

Total current assets=Cash and marketable securities+AR+Inventory

Hence

Cash and marketable securities=($16,160,000-$8,347,107.438-$5,810,958.904)

which is equal to

=$2,001,933.66(Approx).