What can you say about the companys short-term liquidity

Reference no: EM131959292

Problem

Platinum Corporation belongs to the rubber tire trading industry. Its most recent balance sheet and income statement appear below:

Statement of Financial Position December 31, Year 2 and Year 1 (in thousands of dollars)


	Year 2	Year 1
Assets
Current assets:
Cash...	$ 30	$ 110
Accounts receivable	210	260
Inventory	190	170
Prepaid expenses.	70	70
Total current assets	500	610
Plant and equipment, net...	810	740
Total assets	$1,310	$1,350
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable	$ 140	$ 150
Accrued liabilities...	30	30
Notes payable, short term...	40	40
Total current liabilities...	210	220
Bonds payable...	190	240
Total liabilities	400	460
Stockholders' equity:
Preferred stock, $100 par value, 5%...	100	100
Common stock, $2 par value..	400	400
Additional paid-in capital-common stock..	130	130
Retained earnings...	280	260
Total stockholders' equity.	910	890
Total liabilities & stockholders' equity..	$1,310	$1,350

Income Statement For the Year Ended December 31, Year 2 (in thousands of dollars)


Sales (all on account).	$1,260
Cost of goods sold.	770
Gross margin..	490
Selling and administrative expense	400
Net operating income.	90
Interest expense.	26
Net income before taxes	64
Income taxes (30%)...	19
Net income	$ 45

Required:

Compute the following for Year 2:

Working capital.
Current ratio.
Acid-test ratio.

Accounts receivable turnover. Average collection period.

Inventory turnover.
Average sale period

What can you say about the company's short-term liquidity?

If the industry average in terms of collection period is 45 days, and inventory turnover is 6 times, how is the company performing compared to the industry?

Reference no: EM131959292

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