Exercise 138 Selected Financial Ratios LO132 LO133 LO134 The

Exercise 13-8 Selected Financial Ratios [LO13-2, LO13-3, LO13-4]

The financial statements for Castile Products, Inc., are given below:

Account balances at the beginning of the year were: accounts receivable, $170,000; and inventory, $330,000. All sales were on account.

Operating cycle. (Round your intermediate calculations and final answers to 1 decimal place.)

The financial statements for Castile Products, Inc., are given below:

5. Times interest earned ratio. (Round your answer to 2 decimal places.)

Ans: Formula Earnings before interest and taxes/Interest expense

562,000/30400=18.48

6. Average collection period. (Use 365 days in a year. Round your answer to 1 decimal place.)

Ans: Average Accounts Receivable/sales revenue*365

Average accounts receivable=Opening receivable +Closing receivables/2

170000+190000/2=180000

Sales Revenue=2520000

Therefore Average Collection period= 180000/2520000*365=26 days

7. Average sale period. (Use 365 days in a year. Round your intermediate and final answer to 1 decimal place.)

Ans: Average sale period formula=

365/Inventory Turnover

Inventory Turnover= Cost of goods sold/Average Inventory Balance

Cost of goods sold = 136,8000

Average Inventory Balance=Opening balance + Closing Balance/2

=330 000 +390 000/2

=360,000

Therefore Inventory Turnover=1368000/360000=3.8

Average sale period=365/3.8=96 Days

Operating cycle. (Round your intermediate calculations and final answers to 1 decimal place.)

Formula 365/Inventory Turnover +365/Receivable turnover

Inventory period + Accounts Receivable period

Inventory turnover =3.8

Receivable Turnover=Credit sales/Average accounts receivable

Credit sales=2520000

Average accounts receivable =180000

Receivable Turnover=2520000/180000=14

Therefore operating cycle=365/3.8 +365/14=96+26=122 Days