Ch. 1- Homework Problems Problems Consider the following financial data from the

Question

Ch. 1- Homework Problems Problems Consider the following financial data from the past year for Midwest Outdoor Equipment Corporation $49,975,000 48,159,000 Total credit sales 28,413,000 5, 889,000 Cost of goods sold 24,948,000 13,920,000 6,504,000 Average receivables 4,546,000 Gross income Total sales Net income Total assets Average inventory a. Compute the receivable turnover ratio. (Round your answer to 3 decimal places.) the inventory turnover ratio (Round your answer to 3 decimal places.) MacBook Air 4

Explanation / Answer

a.Receivables Turnover Ratio = Net Credit Sales/ Average Receivables

   = 28,413,000/ 4,546,000 = 6.250

This means that the company collects its receivables 6.250 times on an average per year.

b. Inventory Turnover Ratio = Cost of Goods Sold / Average Inventory

= 24,948,000/ 6,504,000 = 3.836

The higher this ratio, the better it is since it means that the company is selling its goods quicker and there is a demand for the products.

c. Asset Turnover Ratio = Total Sales/ Average total Assets

   = 48,159,000/ 13,920,000 = 3.460

Here we are assuming the Total Assets to be the Average total assets throughout the year.

The higher the ratio, the better it is as it means that the company generates greater revenue per dollar of the assets.

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