You have reviewed the books of Anderson Incorporated and learned the following:
1.) Quick Ratio is 1.4
2.) Current Ratio is 3.1
3.) Inventory Turn-Over is 4.9 times
4.) Current Assets are $820,000
5.) Cash and equivalents are $115,000
Using this information, answer the following two questions:
1.) What are my annual sales?
2.) What is my DSO (Days Sales Outstanding)? (Note: DSO is Accounts Receivable/(Annual Sales/360)) In other words, it is the accounts receivable divided by the average daily sales amount.
To answer your questions, I will need additional information. Specifically, I need to know the Accounts Receivable value in order to calculate the annual sales and DSO accurately.
To answer the first question, we need additional information as the provided data does not directly give us the annual sales figure. However, we can use the Quick Ratio and the Current Assets to estimate the annual sales.
The Quick Ratio is calculated by dividing the Quick Assets (current assets excluding inventory) by the Current Liabilities. In this case, the Quick Ratio is given as 1.4, which means Quick Assets are 1.4 times the Current Liabilities.
We are also provided with the Current Assets, which is $820,000. Let's assume that the inventory is 40% of the Current Assets, which means Quick Assets would be 60% of the Current Assets.
Quick Assets = 0.6 * Current Assets
Quick Assets = 0.6 * $820,000
Quick Assets = $492,000
Now, we need to find the Current Liabilities to calculate the annual sales. Unfortunately, the information does not provide the Current Liabilities. However, we can use the Current Ratio to estimate it.
The Current Ratio is calculated by dividing the Current Assets by the Current Liabilities. In this case, the Current Ratio is given as 3.1, which means Current Assets are 3.1 times the Current Liabilities.
Current Assets = Current Ratio * Current Liabilities
$820,000 = 3.1 * Current Liabilities
Current Liabilities = $820,000 / 3.1
Current Liabilities ≈ $264,516
Now, we can estimate the annual sales using the Quick Ratio and the estimated Current Liabilities.
Quick Ratio = Quick Assets / Current Liabilities
1.4 = $492,000 / Estimated Annual Sales
Estimated Annual Sales ≈ $492,000 / 1.4
Estimated Annual Sales ≈ $351,428.57
Therefore, based on the given information, the estimated annual sales for Anderson Incorporated is approximately $351,428.57.
To answer the second question regarding the DSO (Days Sales Outstanding), we need the Accounts Receivable figure, which is not given. However, we can estimate it using the information provided.
The DSO is calculated by dividing the Accounts Receivable by the average daily sales amount, which is calculated using the annual sales figure.
Let's assume the Accounts Receivable is 25% of the Annual Sales, which means Accounts Receivable would be 25% of $351,428.57.
Accounts Receivable = 0.25 * Estimated Annual Sales
Accounts Receivable = 0.25 * $351,428.57
Accounts Receivable = $87,857.14
Now, we can calculate the DSO using the estimated Accounts Receivable and the annual sales figure.
DSO = Accounts Receivable / (Estimated Annual Sales / 360)
DSO = $87,857.14 / ($351,428.57 / 360)
DSO ≈ $87,857.14 / 0.9761
Therefore, based on the given information and estimations made, the estimated DSO (Days Sales Outstanding) for Anderson Incorporated is approximately 90 days.