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Use the following data to answer questions “a” through “d”: ABC Corporation Selected Financal Data, December...

Use the following data to answer questions “a” through “d”:
ABC Corporation Selected Financal Data,
December 31,2019
a) Calculate the ABC’s Current Ratio (%)
b) Calculate the ABC’s Liquidity Ratio (%)
c) Calculate the ABC’s Net Working Capital
d) Calculate the ABC’s inventory turnover (times)
Current Assets=
$ 750,000
Current Liabilities=
$ 900,000
Inventories=
$ 150,000
Accounts Receivable=
$ 240,000
Net Sales=
$ 900,000
Cost of Goods Sold=
$ 675,000

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Answer #1

a) Current Ratio = Current Assets / Current Liabilities * 100

= $ 7,50,000 / $ 9,00,000 *100

= 83.33%

b) Liquidity Ratio = (Current Assets - Inventories) / Current Liabilities * 100

= ($ 7,50,000 - $ 1,50,000) / $ 9,00,000 * 100

= 66.66%

c) Net working capital = Current Assets - Current Liabilities

= $ 7,50,000 - $ 9,00,000

= ( $ 1,50,000)

Net working capital is negative since current liabilities exceeds current assets.

d) Inventory Turnover Ratio = Cost of Goods Sold / Average Inventories

= $ 6,75,000 / $ 1,50,000

= 4.5 Times

Note: Since value of opening and closing inventories are not available, average inventories can't be obtained for computation of inventory turnover ratio. In such cases closing inventories shall taken for this purpose as calculated above.

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