Problem:
jim Short’s Company makes clothing for schools. Sales in 2010 were $4,000,000. Assets were as follows:
| Cash |
$100,000 |
| Accounts receivable |
$800,000 |
| Inventory |
$400,000 |
| Net plant and equipment |
500,000 |
| Total assets |
1,800,000 |
a. Compute the following:
a.1. Accounts receivable turnover
a.2. Inventory turnover
a.3. Fixed asset turnover
a.4. Total asset turnover
b. In 2011, sales increased to $5,000,000 and the assets for that year were as follows:
| Cash |
$100,000 |
| Accounts receivable |
$900,000 |
| Inventory |
$975,000 |
| Net plant and equipment |
500,000 |
| Total assets |
2,475,000 |
Once again, compute the four ratios.
c. Indicate if there is an improvement or decline in total asset turnover, and based on the other ratios, indicate why this development has taken place.