Question

Cintas designs, manufactures, and implements corporate identity uniform programs that it rents or sells to customers throughout the United States and Canada. The company’s stock is traded on the NASDAQ and has provided investors with significant returns over the past few years. Selected information from the company’s balance sheet follows. For 2012, the company reported sales revenue of $3,707,600 and cost of goods sold of $1,517,815. CINTAS Balance Sheet (in thousands) 2012 2011 Cash $ 35,378 $ 38,933 Marketable securities — 202,554 Accounts receivable 408,877 389,908 Inventories 231,744 198,013 Prepaid expense and other 15,794 15,794 Accounts payable 64,630 71,646 Accrued compensation and related liabilities 70,768 95,374 Accrued liabilities 263,521 239,068 Accrued tax liability 2,561 — Long-term debt due within one year 4,150 26,666 Required: Compute the current ratio, inventory turnover ratio, and accounts receivable turnover ratio (assuming that 70 percent of sales were on credit). (Round your answers to 1 decimal place.)

Answer 1

Solution:-

1. Current ratio:-

	2012	2011
Current ratio	1.71 times	1.26 times

Explanation:-

	2012	2011
Current Assets	691,793	845,202
Current Liabilities	405,630	432,754
Current ratio	1.71 times	1.26 times

2. Inventory turnover ratio:-

	2012
Inventory turnover ratio	7.06 times

Explanation:-

Cost of goods sold	1,517,815
Average inventory (231,744 + 198,013) / 2	214,878.50
Inventory turnover ratio	7.06 times

3. Accounts receivable turnover ratio:-

	2012
Account receivable turnover ratio	6.50 times

Explanation:-

Net credit sales (3,707,600 * 70%)	2,595,320
Average accounts receivable (408,877 + 389,908) / 2	399,392.50
Account receivable turnover ratio	6.50 times