FM4013 RATIO ANALYSIS REVISION 1

Which of the following is not a current asset account?

• Inventory

• Prepaid Insurance

• Fixtures

• Bank

Current asset MINUS current liabilities is the

• Current Ratio

• Net Asset

• Net Worth

• Working Capital

Current assets DIVIDED BY current liabilities is the

• Current Ratio

• Quick Ratio

• Net Worth

• Working Capital

The quick ratio EXCLUDES which of the following accounts?

• Bank

• Cash

• Inventory

• Debtor

For its most recent year a company had Sales (all on credit) of $830,000 and Cost of Goods Sold of $525,000. At the beginning of the year, its Accounts Receivable were $80,000 and its Inventory was $100,000. At the end of the year, its Accounts Receivable were $86,000 and its Inventory was $110,000.

The inventory turnover ratio for the year was

• 4.8

• 4.9

• 5.0

• 7.9

Answer explanation

The inventory turnover = Cost of Goods Sold DIVIDED BY average Inventory. In this case that means $525,000 DIVIDED BY $105,000 = 5.0

For its most recent year a company had Sales (all on credit) of $830,000 and Cost of Goods Sold of $525,000. At the beginning of the year, its Accounts Receivable were $80,000 and its Inventory was $100,000. At the end of the year, its Accounts Receivable were $86,000 and its Inventory was $110,000.

The accounts receivable turnover ratio for the year was

• 6.3

• 7.5

• 10.0

• 10.5

Answer explanation

The accounts receivable turnover = Credit Sales DIVIDED BY average Accounts Receivable. In this case that means $830,000 DIVIDED BY $83,000 = 10.0.

For its most recent year a company had Sales (all on credit) of $830,000 and Cost of Goods Sold of $525,000. At the beginning of the year, its Accounts Receivable were $80,000 and its Inventory was $100,000. At the end of the year, its Accounts Receivable were $86,000 and its Inventory was $110,000.

On average how many days of sales were in Accounts Receivable during the year?

• 35

• 36

• 37

• 38

Answer explanation

The number of days sales in Accounts Receivable during the year would be 365 days in the year DIVIDED BY the accounts receivable turnover of 10.0 = 36.5 or 37 days.

For its most recent year a company had Sales (all on credit) of $830,000 and Cost of Goods Sold of $525,000. At the beginning of the year, its Accounts Receivable were $80,000 and its Inventory was $100,000. At the end of the year, its Accounts Receivable were $86,000 and its Inventory was $110,000.

On average how many days of sales were in Inventory during the year?

• 73

• 70

• 40

• 32

Answer explanation

The number of days sales in Inventory during the year would be 365 days DIVIDED BY the inventory turnover of 5.0 = 73 days

The current market value of a corporation is approximately the amount reported on the balance sheet as stockholders' equity.

• True

• False

1. What is the company's Working Capital?

2. What is the company's Current Ratio?

3. What is the company's Quick Ratio?

Answer explanation

1. 66,000 (126,000 - 60,000)

2. 2.1:1 (126,000 / 60,000)

3. The quick ratio or acid test ratio = [(Cash + Temporary Investments + Accounts Receivable) DIVIDED BY current liabilities] : 1 = [($10,000 + $0 + $30,000) DIVIDED BY $60,000] : 1 = 0.66667 : 1 or rounded to 0.7 : 1.