Question

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?

Answer #1

Current ratio = Current assets/Current liabilities

1.6 = Current assets/990000

Current ratio = 1.6 x 990000

Current ratio = 15,84,000

Quick ratio = (Current Assets – Inventory) / Current liabilities

1.2 = (1584000 - Inventory) / 990000

(1584000 - Inventory) = 990000 x 1.2

(1584000 - Inventory) = 1188000

Inventory = 1584000 - 1188000

Inventory = 396000

company’s inventory turnover ratio

= Sales x 100 / Inventory

= 3,000,000 x 100 / 396000

= 7.57575757575

Company’s inventory turnover ratio = 7.58 (rounded off to 2 decimals)

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