Problem
Platinum Corporation belongs to the rubber tire trading industry. Its most recent balance sheet and income statement appear below:
|
Statement of Financial Position
December 31, Year 2 and Year 1
(in thousands of dollars)
|
|
Year 2
|
Year 1
|
|
Assets
|
|
|
|
Current assets:
|
|
|
|
Cash...
|
$ 30
|
$ 110
|
|
Accounts receivable
|
210
|
260
|
|
Inventory
|
190
|
170
|
|
Prepaid expenses.
|
70
|
70
|
|
Total current assets
|
500
|
610
|
|
Plant and equipment, net...
|
810
|
740
|
|
Total assets
|
$1,310
|
$1,350
|
|
Liabilities and Stockholders' Equity
|
|
|
|
Current liabilities:
|
|
|
|
Accounts payable
|
$ 140
|
$ 150
|
|
Accrued liabilities...
|
30
|
30
|
|
Notes payable, short term...
|
40
|
40
|
|
Total current liabilities...
|
210
|
220
|
|
Bonds payable...
|
190
|
240
|
|
Total liabilities
|
400
|
460
|
|
Stockholders' equity:
|
|
|
|
Preferred stock, $100 par value, 5%...
|
100
|
100
|
|
Common stock, $2 par value..
|
400
|
400
|
|
Additional paid-in capital-common stock..
|
130
|
130
|
|
Retained earnings...
|
280
|
260
|
|
Total stockholders' equity.
|
910
|
890
|
|
Total liabilities & stockholders' equity..
|
$1,310
|
$1,350
|
|
Income Statement
For the Year Ended December 31, Year 2
(in thousands of dollars)
|
|
Sales (all on account).
|
$1,260
|
|
Cost of goods sold.
|
770
|
|
Gross margin..
|
490
|
|
Selling and administrative expense
|
400
|
|
Net operating income.
|
90
|
|
Interest expense.
|
26
|
|
Net income before taxes
|
64
|
|
Income taxes (30%)...
|
19
|
|
Net income
|
$ 45
|
Required:
Compute the following for Year 2:
Working capital.
Current ratio.
Acid-test ratio.
Accounts receivable turnover. Average collection period.
Inventory turnover.
Average sale period
What can you say about the company's short-term liquidity?
If the industry average in terms of collection period is 45 days, and inventory turnover is 6 times, how is the company performing compared to the industry?