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, $190,000; and inventory, $290,000. All sales were on account.

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

Solution

6. Accounts receivable turnover = Sales on account/ Average accounts receivable

= 2,870,000 / [ ($190,000 + 220,000 )/2]

= 14

Average collection period = 365 / Accounts receivable turnover

= 365 / 14

= 26.071

7.

Average sale period =

Inventory turnover = Cost of goods sold / Average inventory

= 1,224,000 / [ (290000 + 390,000 )/2]

= 3.6 Times

Average sale period = 365 / Inventory turnover ratio

= 365 / 3.6

= 101.39

8. Operating cycle = Average collection period + Average sale period

= 26.071 + 101.39

= 127.46