Response to the following problem:
The following financial data were taken from the annual financial statements of Smith Corporation:
|
|
2009
|
2010
|
2011
|
|
Current assets
|
$ 450,000
|
$ 400,000
|
$ 400,000
|
|
Current liabilities
|
390,000
|
100,000
|
140,000
|
|
Sales
|
1,450,000
|
1,500,000
|
1,400,000
|
|
Cost of goods sold
|
1,180,000
|
1,020,000
|
1,120,000
|
|
Inventory
|
280,000
|
200,000
|
250,000
|
|
Accounts receivable
|
120,000
|
110,000
|
105,000
|
Required:
a. Based on these data, calculate the following for 2010 and 2011:
1. Working capital
2. Current ratio
3. Acid-test ratio
4. Accounts receivable turnover
5. Merchandise inventory turnover
6. Inventory turnover in days
b. Evaluate the results of your computations in regard to the short-term liquidity of the firm.