Question

In: Accounting

From the data below, produce the following financial rates for Business “XYZ” and comment on your...

From the data below, produce the following financial rates for Business “XYZ” and comment on your current business situation.
Indicators:
to. Short-term solvency rate
b. Short-term debt rate
c. Inventory turnover rate
d. Average days of accounts receivable
The data for the company are:
Sales of the year: $ 250,000
Current assets: $ 220,000
Inventory: $ 50,000
Accounts receivable: $ 35,000
Current liabilities: $ 121,000
one

Solutions

Expert Solution

a) short term solvency rate- current assets/current liabilities

=$220000/121000 =1.82:1

this ratio shows the liquidity capacity of the company. The ideal rate for this is2:1, company's ratio is close to that so company is doing good to maintain solvency.

b) short term debt rate= current assets/current liabilities

=$220000/121000 =1.82:1

this ratio shows the liquidity capacity of the company. The ideal rate for this is2:1, company's ratio is close to that so company is doing good to maintain solvency.

c) Inventory turnover rate= sales/inventory

$250000/50000

5 times

it shows how the business manages sales of its inventory so a high ratio is good. the company is doing good in this parameter

d)Average days of accounts receivable= accounts recievable/365

35000/365 =$95.9

it shows that how long a companies take to recieve due amount, the company would want to keep it low so that they can reinvest it in the business


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