Question

For questions 8-13, reference the ratios below:

	SunBeam Manufacturing				Electronics Industry
	2019	2018	2017		2019	2018	2017
Current Ratio	1.8	1.7	1.5		1.5	1.2	1.0
Accounts Rec. Turnover	13.0	12.1	10.0		11.0	12.0	10.0
# Days’ Sales in Receivables	28.1	30.2	36.5		33.2	30.4	36.5
Inventory Turnover	9.9	8.9	7.2		9.9	9.8	9.8
# Days’ Sales in Inventory	36.9	41.0	50.7		36.9	37.2	37.2

_____8. SunBeam’s current ratio (liquidity) is:

1. Stronger over time
2. Getting weaker over time
3. Higher than its industry
4. Both a and c above
5. Both b and d above

_____9. Assume the quick ratio for SunBeam is 0.5. When comparing the data to SunBeam’s current ratio noted above, the following conclusions may be made, except:

1. The company has most of its current assets in inventory
2. The company has the ability to meet its short-term obligations
3. The company may have difficulty paying short-term obligations if they all need to be paid immediately
4. The company may use cash management strategies to extend credit terms with suppliers so it can delay payments for a greater amount of time and this may decrease the current ratio
5. The company has most of its current assets in cash and accounts receivables

_____10. SunBeam’s accounts receivable turnover performance is:

1. Improving over time
2. Getting worse over time
3. Better than its industry
4. b and c above are both correct
5. a and c above are both correct

_____11. SunBeam’s # Days’ Sales in Receivables are noted in the table above. If credit terms are 30 days, which of the following interpretations is correct?

1. Collection performance improved, but credit terms are not being met
2. Collection performance improved and credit terms are being met
3. Collection performance deteriorated and credit terms are not being met
4. Collection performance deteriorated, but credit terms are being met
5. None of the above are correct

_____12. T or F: SunBeam’s is “closing the gap” between its inventory turns and industry results.

_____13. T or F: Based on SunBeam’s Inventory information in the table (2 ratios):

SunBeam is turning inventory faster over time, which means inventory is on hand for a fewer number of days. The company is managing inventory more efficiently.

Answer 1

	S.No.	Correct Option	Reason
	8	d)	Sunbeam current ratio is incresing each year and is greater than industry in all years
	9	a)	Quick ratio = (Current Assets - Inventory )/Current Liability
			Major difference between quick ratio and current ratio can be seen which is always due to higher inventory.
	10	e)	Its improving over time and better tha industry average.
	11	a)	Collection performance improved, but credit terms are not being met in 2017 as in 2017 ratio is 35.5 which is more than 30days credit period.
	12	TRUE	In 2019, inventory turnover gap of sunbeam and industry is nil.
	13	TRUE	In 2019 days sales in inventory is improved to 36.9 as compared to 50.7 in 2017