Computation and evaluation of activity ratios. The following data relate to Alaska Products Inc.:
|
|
20X5
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20X4
|
|
Net Credit Sales
|
$842,000
|
$760,000
|
|
Cost of Goods Sold
|
450,000
|
350,000
|
|
Cash, Dec. 31
|
125,000
|
110,000
|
|
Accounts Receivable, Dec. 31
|
180,000
|
140,000
|
|
Inventory, Dec. 31
|
70,000
|
50,000
|
|
Accounts Payable, Dec. 31
|
115,000
|
108,000
|
|
|
The company is planning to borrow $300,000 via a 90-day bank loan to cover short-term operating needs.
a. Compute the accounts-receivable and inventory-turnover ratios for 20X5
Accounts Receivable Turnover
Inventory Turnover
Study the ratios from part (a) and comment on the company's ability to repay a bank loan in 90 days.
Suppose that Alaska's major line of business involves the processing and distribution of fresh and frozen fish throughout the United States.
Do you have any concerns about the company's inventory-turnover ratio? Briefly discuss.