Question

Company A has a current ratio of 2.0 and its quick ratio is 1.6. The company has $5 million in current liabilities. The company’s inventory turnover ratio is 5. The company wants to improve its inventory turnover ratio so that it is equal to the industry average of 6.2, without changing its sales. Assume that the company can do this, and that the company uses the freed-up cash from the decline in inventory to reduce its accounts payable. What would be the company’s quick ratio after this change?

Answer #1

Current Ratio = 2 CA/CL = 2 CA = 2CL,

Quick Ratio = 1.60 (CA - Inventory) / CL = 1.60 ; CA - Inventory = 1.60 CL: 2CL - Inventory = 1.60 CL Inventory = 0.40 CL

Inventory Turnover Ratio = Sales/Inventory. Let us assume Sales = 100, Inventory = 100/5 = 20

Thus CL = 20/0.4 = 50

CA = 2 * CL = 2*50 = 100,

Other CA = 100 - 20 = 80

To increase Inventory Turnover Ratio to 6.2, Inventory should be = 100/6.20 = 16.13, thus decrease in Inventory = 20 - 16.13 = 3.87. This money will be used to reduce bills payable.

So new current liab = 50 - 3.87 = 46.13.

Current Assets (other than Inventory) = 80

Thus Quick Ratio new = new CA except inventory / Current Liab = 80/46.13 = 1.73.

Thus the quick ratio will increase to 1.73 times.

Chiellini Company has a current ratio = 1.6, and a quick ratio
equal to 1.2. The company has $3 million in sales and its current
liabilities are $990,000. The company has $10,000,000 of retained
earnings. What is the company’s inventory turnover ratio?

A company has a quick ratio of 2.3 and a current ratio of 2.8.
Industry averages are 2.0 for the quick ratio and 3.1 for the
current ratio. Which of the following statements is most likely
true?
Question 2 options:
a)The company has less inventory than the industry
benchmark.
b)The company has more receivables than the industry
benchmark.
c)The company has less receivables than the industry
benchmark.
d)The company has more inventory than the industry
benchmark.

Current and Quick Ratios
The Nelson Company has $1,228,500 in current assets and $455,000
in current liabilities. Its initial inventory level is $330,000,
and it will raise funds as additional notes payable and use them to
increase inventory. How much can Nelson's short-term debt (notes
payable) increase without pushing its current ratio below 2.0? Do
not round intermediate calculations. Round your answer to the
nearest dollar.
What will be the firm's quick ratio after Nelson has raised the
maximum amount...

Current and Quick Ratios
The Nelson Company has $1,260,000 in current assets and $450,000
in current liabilities. Its initial inventory level is $300,000,
and it will raise funds as additional notes payable and use them to
increase inventory. How much can Nelson's short-term debt (notes
payable) increase without pushing its current ratio below 2.0? Do
not round intermediate calculations. Round answer to the nearest
dollar.
$
What will be the firm's quick ratio after Nelson has raised the
maximum amount...

Walker Corp. has current liabilities of $460,000, a quick ratio
of .86, inventory turnover of 6.2, and a current ratio of 1.4. What
is the cost of goods sold for the company? (Do not round
intermediate calculations.)

Current and Quick Ratios The Nelson Company has $1,260,000 in
current assets and $450,000 in current liabilities. Its initial
inventory level is $360,000, and it will raise funds as additional
notes payable and use them to increase inventory. How much can
Nelson's short-term debt (notes payable) increase without pushing
its current ratio below 1.9? Round your answer to the nearest cent.
$ What will be the firm's quick ratio after Nelson has raised the
maximum amount of short-term funds? Round...

your firm has current assets of $1.6 million with a current
ratio of 2.4 and a quick ratio of 0.8. Your inventory turnover is 6
and your profit margin is 5%. If cost of goods sold are 40% of your
sales, what is your net income?

Current and Quick Ratios The Nelson Company has $1,363,000 in
current assets and $470,000 in current liabilities. Its initial
inventory level is $330,000, and it will raise funds as additional
notes payable and use them to increase inventory. How much can
Nelson's short-term debt (notes payable) increase without pushing
its current ratio below 1.8? Do not round intermediate
calculations. Round your answer to the nearest dollar.
$
What will be the firm's quick ratio after Nelson has raised the
maximum...

Current and Quick Ratios
The Nelson Company has $1,312,500 in current assets and $525,000
in current liabilities. Its initial inventory level is $360,000,
and it will raise funds as additional notes payable and use them to
increase inventory. How much can Nelson's short-term debt (notes
payable) increase without pushing its current ratio below 2.2? Do
not round intermediate calculations. Round your answer to the
nearest dollar. $
What will be the firm's quick ratio after Nelson has raised the
maximum...

2- Current and Quick Ratios
The Nelson Company has $1,650,000 in current assets and $550,000
in current liabilities. Its initial inventory level is $385,000,
and it will raise funds as additional notes payable and use them to
increase inventory.
A) How much can Nelson's short-term debt (notes payable)
increase without pushing its current ratio below 1.2? Round your
answer to the nearest cent. $
B) What will be the firm's quick ratio after Nelson has raised
the maximum amount of...

ADVERTISEMENT

Get Answers For Free

Most questions answered within 1 hours.

ADVERTISEMENT

asked 7 minutes ago

asked 8 minutes ago

asked 21 minutes ago

asked 30 minutes ago

asked 38 minutes ago

asked 40 minutes ago

asked 40 minutes ago

asked 40 minutes ago

asked 40 minutes ago

asked 46 minutes ago

asked 50 minutes ago

asked 57 minutes ago