Question

The financial statements for Royale and Cavalier companies are summarized here:

	Royale Company				Cavalier Company
Balance Sheet
Cash	$	26,000			$	46,000
Accounts Receivable, Net		56,000				17,000
Inventory		112,000				27,000
Equipment, Net		552,000				162,000
Other Assets		141,000				47,000
Total Assets	$	887,000			$	299,000
Current Liabilities	$	122,000			$	17,000
Note Payable (long-term)		192,000				57,000
Common Stock (par $20)		481,000				211,000
Additional Paid-In Capital		51,000				5,000
Retained Earnings		41,000				9,000
Total Liabilities and Stockholders’ Equity	$	887,000			$	299,000
Income Statement
Sales Revenue	$	803,000			$	283,000
Cost of Goods Sold		481,000				151,000
Other Expenses		241,000				96,000
Net Income	$	81,000			$	36,000
Other Data
Per share price at end of year	$	19.00			$	11.00
Selected Data from Previous Year
Accounts Receivable, Net	$	48,000			$	15,000
Note Payable (long-term)		192,000				57,000
Equipment, Net		552,000				162,000
Inventory		96,000				39,000
Total Stockholders' Equity		573,000				225,000

These two companies are in the same business and state but different cities. Each company has been in operation for about 10 years. Both companies received an unqualified audit opinion on the financial statements. Royale Company wants to borrow $76,000 cash and Cavalier Company is asking for $31,000. The loans will be for a two-year period. Both companies estimate bad debts based on an aging analysis, but Cavalier has estimated slightly higher uncollectible rates than Royale. Neither company issued stock in the current year. Assume the end-of-year total assets and net equipment balances approximate the year’s average and all sales are on account.

Required:

1. Calculate the following ratios. (Use 365 days in a year. Round your intermediate calculations and final answers to 2 decimal places.)

I'm not sure how to calculate these questions:

7. Receivables Turnover:

Days to collect:

8. Inventory Turnover:

Days to Sell:

10. Debt- to -assets

Answer 1

	Royale	Cavalier
	Company	Company
7. Receivables Turnover= Net credit sales/Average Receivables
Av. Receivables=( Beginning Rec.+Ending Rec.)/2
	803000/((56000+48000)/2)=	283000/((17000+15000)/2)=
times	15.44	17.69
Days to collect= 365/ Accounts rec. Turnover
	365/15.44=	365/17.69=
days	23.64	20.63
8. Inventory Turnover= Cost of goods sold/Average Inventory
Av. Inventory=( Beginning Rec.+Ending Inventory)/2
	481000/(112000+96000)/2	151000/((27000+39000)/2)=
times	4.63	4.58
Days to sell= 365/ Inventory Turnover
	365/4.63=	365/4.58=
Days	78.83	79.69
10.Debt- to -assets= Total Liabilities/Total Assets
	(122000+192000)/887000=	(17000+57000)/299000=
	0.35	0.25