Q4TI
Question
The financial statements of Ion Corporation include the following items:
Current Year Preceding Year
Balance Sheet:
Cash \( 6,000 \) 8,000
Short-term Investments 4,400 10,700
Net Accounts Receivable 21,600 29,200
Merchandise Inventory 30,800 27,600
Prepaid Expenses 6,000 3,600
Total Current Assets 68,800 79,100
Total Current Liabilities 53,200 37,200
Income Statement:
Net Sales Revenue $ 184,800
Cost of Goods Sold 126,000
Compute the following ratios for the current year:
7. Current ratio
8. Acid-test ratio
9. Inventory turnover
10. Gross profit percentage
Step-by-Step Solution
VerifiedAnswer
Current Ratio- 1.29 times Acid Test ratio= 0.7143 or 71.43%, Inventory Turnover- 4.32 times, Gross Profit Percentage= 31.8%
Current ratio- The current ratio is a liquidity ratio that measures a company's ability to pay short-term obligations or those due within one year
Acid Test Ratio- The acid test, or quick ratio, shows if a company has, or can get, enough cash to pay its immediate liabilities, such as short-term debt.
Inventory Turnover- Inventory turnover is the rate that which inventory stock is sold, or used, and replaced. The inventory turnover ratio is calculated by dividing the cost of goods by the average inventory for the same period. A higher ratio tends to point to strong sales and a lower one too weak sale
Gross Profit Percentage- The gross profit margin is a metric used to assess a firm's financial health and is equal to the revenue less the cost of goods sold as a percent of total revenue.
Current Ratio- Current Assets / Current Liabilities
= 68,800/ 53,200
=1.29 times
Acid Test Ratio- (Current Assets – Inventory)/Current Liabilities
=(68,800- 30,800)/53,200
= 0.7143 or 71.43%
Inventory Turnover- Cost of Goods Sold/ Average Inventory
= 126,000/[(30,800+27,600)]/2
=126,000/29,200
=4.32 times
Gross Profit Percentage= (Revenue-COGS) /Revenue
= (184,800- 126,000)/184,800
=0.318 or 31.8%