Compute the accounts receivable and inventory turnover

Question

Computation and evaluation of activity ratios. The following data relate to Alaska Products, Inc:

 

	19X5		19X4
Net credit sales	$832,000	$760,000
Cost of goods sold	440,000	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.

1. Compute the accounts receivable and inventory turnover ratios for 19X5. Alaska rounds all calculations to two decimal places.
2. Study the ratios from part (a) and comment on the company's ability to repay a bank loan in 90 days.
3. 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.