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?
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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