Compute accounts-receivable and inventory-turnover ratios

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

 

20X5

20X4

Net Credit Sales

$842,000

$760,000

Cost of Goods Sold

450,000

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.

a. Compute the accounts-receivable and inventory-turnover ratios for 20X5

Accounts Receivable Turnover

Inventory Turnover

Study the ratios from part (a) and comment on the company's ability to repay a bank loan in 90 days.

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: EM131767318

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