Question

Case scenario B

1. Consider you are the accountant working for a small IT company that manufactures a new memory storage device. Computer giant Dell has offered to put the new device in their laptops if your firm will extend them credit terms that allow them 90 days to pay. Since your company does not have many cash resources, your boss has asked you to look into Dell’s liquidity and analyze its ability to pay their bills on time using the following accounting information for Dell and two other firms (figures in thousands of dollars):

	2009
	Dell $	Apple $	HP $
Current Assets	24,245	31,555	52,539
Accounts Receivables	8,543	5,057	25,301
Cash	10,635	23,464	13,334
Inventories	1,051	455	6,128
Other Current Assets	3,643	2,579	7,776
Sales	61,101	42,905	91,658
COGs	50,144	25,683	69,178
Total Current liabilities	14,859	11,506	35,850

Calculate the following Liquidity Ratios and comment on the results:

1. Current ratio
2. Acid-test ratio
3. Accounts receivable Turnover
4. Inventory turnover

Answer 1

	Dell	Apple	HP
Current Assets	24245	31555	52539
Accounts Receivables	8543	5057	25301
Cash	10635	23464	13334
Inventories	1051	455	6128
Other Current Assets	3643	2579	7776
Sales	61101	42905	91658
COGS	50144	25683	69178
Total Current liabilities	14859	11506	35850
Current Ratio	3.24	5.48	2.93
Acid Test Ratio	2.92	5.22	2.54
Accounts receivable Turnover	7.15	8.48	3.62
Inventory turnover	47.71	56.45	11.29