Computation and evaluation of activity ratios

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Reference no: EM13491740

Computation and evaluation of activity ratios. The following data relate to Alaska Products, Inc:

 

 

19X5

19X4

Net credit sales

$832,000

$760,000

 

Cost of goods sold

440,000

350,000

 

Cash, Dec. 31

125,000

110,000

 

Accounts receivable, Dec. 31

180,000

140,000

 

Inventory, Dec. 31

70,000

50,000

 

Accounts payable, Dec. 31

115,000

108,000

 






 

The company is planning to borrow $300,000 via a 90-day bank loan to cover short-term operating needs.

  1. Compute the accounts receivable and inventory turnover ratios for 19X5. Alaska rounds all calculations to two decimal places.
  2. Study the ratios from part (a) and comment on the company's ability to repay a bank loan in 90 days.
  3. Suppose that Alaska's major line of business involves the processing and distribution of fresh and frozen fish throughout the United States. Do you have any concerns about the company's inventory turnover ratio? Briefly discuss.

 

 

Reference no: EM13491740

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