a partial balance sheet and income statement for King Corproation follow:
KING CORPORATION
Partial Balance Sheet
December 31,2009
Assets
Current assets:
Cash $33,493
Marketable securities $215,147
Trade receivables, less allowance of $6,000 $255,000
Inventories, LIFO $523,000
Prepaid expenses $26,180
Total current assets $1,052,820
Liabilities
Current liabilities
Trade accounts payable $103,689
Notes payable (primarily to banks) and commercial paper $210,381
Accrued expenses and other liabilities $120,602
Income taxes payable $3,120
Current maturities of long-term debt $22,050
Total current liabilities $459,842
KING CORPORATION
Partial Income Statement
For Year Ended December 31, 2009
Net sales $3,050,600
Miscellaneous income $45,060
$3,095,660
Cost and expenses:
Cost of sales $2,185,100
Selling, general, and administrative expenses $350,265
Interest expense $45,600
Income taxes $300,000
$2,880,965
Net income $214,695
The trade receivables at December 31, 2008, were $280,000, net of an allowance of $8,000, for a gross receivables figure of $288,000. The Inventory at December 31,2008, was $565,000
Compute the following:
a. Working capital
b. Current ratio
c. Acid-test ratio
d. Cash ratio
e. Days' sales in receivables
f. Accounts receivable turnover in days
g. Days' sales in inventory
h. Inventory turnover in days
i. Operating cycle
khulood
To compute the following ratios and figures, you'll need to gather the relevant information from the provided financial statements.
a. Working capital:
Working capital is calculated by subtracting current liabilities from current assets.
Working Capital = Total Current Assets - Total Current Liabilities
Working Capital = $1,052,820 - $459,842
Working Capital = $592,978
b. Current ratio:
The current ratio measures the company's ability to pay off its short-term liabilities using its short-term assets.
Current Ratio = Total Current Assets / Total Current Liabilities
Current Ratio = $1,052,820 / $459,842
Current Ratio ≈ 2.29
c. Acid-test ratio:
The acid-test ratio, also known as the quick ratio, assesses the company's ability to pay off its current liabilities using its most liquid assets.
Acid-test Ratio = (Cash + Marketable Securities + Trade Receivables) / Total Current Liabilities
Acid-test Ratio = ($33,493 + $215,147 + $255,000) / $459,842
Acid-test Ratio ≈ 1.23
d. Cash ratio:
The cash ratio measures the company's ability to pay off its current liabilities using only its cash and cash equivalents.
Cash Ratio = (Cash + Marketable Securities) / Total Current Liabilities
Cash Ratio = ($33,493 + $215,147) / $459,842
Cash Ratio ≈ 0.53
e. Days' sales in receivables:
Days' sales in receivables calculates the average number of days it takes for the company to collect its accounts receivable.
Days' Sales in Receivables = (Trade Receivables / Net Sales) * 365
Days' Sales in Receivables = ($255,000 / $3,050,600) * 365
Days' Sales in Receivables ≈ 30.57 days
f. Accounts receivable turnover in days:
Accounts receivable turnover in days measures the average number of days it takes for the company to collect its accounts receivable.
Accounts Receivable Turnover = 365 / Days' Sales in Receivables
Accounts Receivable Turnover = 365 / 30.57 days
Accounts Receivable Turnover ≈ 11.95 times
g. Days' sales in inventory:
Days' sales in inventory calculates the average number of days it takes for the company to sell its inventory.
Days' Sales in Inventory = (Inventory / Cost of Sales) * 365
Days' Sales in Inventory = ($523,000 / $2,185,100) * 365
Days' Sales in Inventory ≈ 87.54 days
h. Inventory turnover in days:
Inventory turnover in days measures the average number of days it takes for the company to sell its inventory.
Inventory Turnover = 365 / Days' Sales in Inventory
Inventory Turnover = 365 / 87.54 days
Inventory Turnover ≈ 4.17 times
i. Operating cycle:
The operating cycle represents the time it takes for a company to convert its cash to inventory, then inventory to accounts receivable, and finally, accounts receivable to cash.
Operating Cycle = Days' Sales in Inventory + Days' Sales in Receivables
Operating Cycle = 87.54 days + 30.57 days
Operating Cycle ≈ 118.11 days
Working capital
b. Current ratio
c. Acid-test ratio
d. Cash ratio
e. Days' sales in receivables
f. Accounts receivable turnover in days
g. Days' sales in inventory
h. Inventory turnover in days
i. Operating cycle