Mike Sanders is considering the purchase of Kepler Company, a firm specializing in the manufacture of office
Question:
Mike Sanders is considering the purchase of Kepler Company, a firm specializing in the manufacture of office supplies. To be able to assess the financial capabilities of the company, Mike has been given the company’s financial statements for the 2 most recent years.
Required:
1. Compute the following ratios for each year: (a) current ratio, (b) quick ratio, (c) accounts receivable turnover (in days), and (d) inventory turnover (in days).
2. Has the liquidity of Kepler improved over the past year? Explain why industrial liquidity performance would be useful information in assessing Kepler’s liquidity performance.
Assets Current assets: Cash Accounts receivable, net Inventory Prepaid expenses Total current assets Property and equipment, net Total assets Kepler Company Comparative Balance Sheets Liabilities and Stockholders' Equity Current liabilities: Accounts payable Short-term notes payable Total current liabilities Long-term bonds payable, 12% Total liabilities Stockholders' equity: Common stock (100,000 shares) Retained earnings Total liabilities and stockholders' equity This Year $ 50,000 300,000 600,000 25,000 $ 975,000 125,000 $1,100,000 $ 400,000 200,000 $ 600,000 100,000 $ 700,000 200,000 200,000 $1,100,000 Last Year $ 100,000 150,000 400,000 30,000 $ 680,000 150,000 $830,000 $ 290,000 60,000 $ 350,000 150,000 $ 500,000 200,000 130,000 $830,000
Step by Step Answer:
1 a b c d 2 The liquidity of Kepler has declined over the past year as measured by t...View the full answer
Managerial Accounting The Cornerstone Of Business Decision Making
ISBN: 9780357715345
8th Edition
Authors: Maryanne M. Mowen, Don R. Hansen, Dan L. Heitger
Related Video
Inventory turnover is a key metric that helps businesses evaluate the efficiency of their operations. A high turnover ratio is generally considered positive, indicating that the company is effectively selling its inventory and making efficient use of its resources. On the other hand, a low turnover ratio may indicate issues such as overstocking or slow sales and may require further examination to identify and address the underlying causes. Businesses use this ratio to make decisions about inventory levels, production schedules, and pricing strategies. It also helps businesses to identify areas where they may need to make improvements, such as reducing lead times for production or optimizing sales and marketing efforts. Additionally, inventory turnover is used by investors and analysts as a key performance indicator to evaluate the financial health and growth potential of a company.
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