In: Finance
Referring to the following data of the Omani Company, that extracted from the balance sheet at 31\12\2019, answer the following questions: - (Note; Write all Equations regarding the questions)
(Suppose the other things are fixed)
Data of 2019 |
|
Total Asset Turnover |
2 Times |
Net Fixed Asset |
400 (Thousand OMR) |
Total Liabilities |
400 (Thousand OMR) |
Sales |
2000 (Thousand OMR) |
Quick Ratio |
1.5 Times |
Accounts Receivable |
150 (Thousand OMR) |
Long-term Liabilities |
200 (Thousand OMR) |
Total asset turnover = Sales / Total Assets = 2
or 2,000,000 / Total Assets = 2
or Total assets = 1,000,000
Current assets = Total assets - Fixed assets = 1,000,000 - 400,000 = 600,000
Current Liabilities = Total liabilities - Long term liabilities = 400,000 - 200,000 = 200,000
Current ratio = Current Assets / Current Liabilities = 600,000 / 200,000 = 3
If the current ratio is to be reduced by 33 %, new current ratio = 2
Proposed level of current assets in 2020 to achieve this target = 200,000 x 2 = 400,000 OMR............(1)
Quick ratio for 2019 = 1.5
Quick ratio = ( Current Assets - Inventory ) / Current Liabilities = ( 600,000 - Inventory ) / 200,000 = 1.5
Inventory level in 2019 = 300,000 OMR
Selling period in 2019 = ( 365 / 2,000,000 ) * 300,000 = 54.75 days
Proposed selling period for 2020 = 45.61 days.
Inventory turnover for 2020 = 365 / 45.61 = 8 times............................(2)