Appendix D Learning objective 4 ED20 Computing key ratios Th

Appendix D Learning objective 4 ED-20 Computing key ratios The financial statements of Victory\'s Natural Foods indlude the following items: e. 78 days Current Year Preceding Year Balance Sheet: Cash Short-term Investments Net Accounts Receivable Merchandise Inventory Prepaid Expenses Total Current Assets Total Current Liabilities Income Statement: Net Credit Sales Cost of Goods Sold S 20,000 18,000 50,000 70,000 12,000 170,000 129,000 24,000 26,000 78,000 66,000 10,000 204,000 92,000 478,000 318,000 Compute the following ratios for the current year: a. Current ratio b. Cash ratio c. Acid-test ratio d. Inventory turnover e. Days\' sales in inventory f. Days\' sales in receivables g Gross profit percentage (assume all sales are on credit)

Solution

current ratio = current asset / current liabilities

= 170,000/129,000

= 1.32

cash ratio = cash + cash equivalents/ current liabilites

= 20,000+0/129,000

= 0.16

Acid test ratio= (current assets -inventory)/current liabilities

= (170,000-70,000)/129,000

= 0.77

inventory turnover ratio= cost of goods sold/[ (opening inventory+closing inventory)/2]

= 318,000/[(70,000+66,000)2]

= 4.68

Days sales in inventory= ending inventory/cost of goods sold *365

= 70,000/318,000*365

= 80 days

Days sales in receivable = accounts receivable/ net credit sales

= 50,000/478,000 * 365

= 38 days

Gross profit ratio= (net credit sales- cost of goods sales) / net credit sales

= (478,000-318,000) / 478,000

= 33.47%