Use the Gagnon 2010 income statement below and balance sheet from Short Exercise to compute the following:
Question:
Company Acid-Test Ratio
Horner, Inc. (Utility).............................................. 0.73
Isaacson Company (Department store)................... 0.68
Jona Companies Limited (Grocery store)............... 0.72
a. Gagnons rate of inventory turnover for 2010.
b. Days sales in average receivables during 2010. (Round dollar amounts to one decimal place.) Do these measures look strong or weak? Give the reason for youranswer.
Gagnon, Inc. Balance Sheets (Adapted) December 31, 2010 and 2009 Increase (Decrease 2010 2009 Amount Percenta Dollar amounts in millions Assets Current Assets Cash and cash equivalents Short-term investments Receivables, net Inventories Prepaid expenses and other assets $1,203 $903 $300 33.2 % 7 84 (77) (91.7) 246 256(10) (3.9) 12.3 203343 140 40.8) 91 81 Total current a 1,750 1,667 83 3,619 3,396 223 Property, plant, and equipment, net 6.6 1,089 84 24829.5 14.8 Other assets 824 718 106 Total assets $7282 $6,622 s660 10.0 % Liabilities and Stockholders' Equity Current Liabilities Accounts payable $977 $884 $93 10.5 % 69 (30) (43.5) 5.2 70 73 (3) (4.1) 5.8 3,544 2,982 562 18.8 12.5 5,928 5,169 759 14.7 Short term debt. Other 121 115 Total current liabilities Long-term debt Other liabilities 1,207 1,141 1,177 1,046 131 Total liabiliti Stockholders' Equity Common stock Retained earnings Accumulated other comprehensive (loss) .. 1,513 1,629 (116 (7.1) 159)(176 17 9.7 1354 1453 99 (6.8) Total stockholders' equity Total liabilities and stockholders' equityS7.282 $6,622 660 10.0 %
Step by Step Answer:
Dollar amounts in millions a Inventory turnover Cos...View the full answer
Financial accounting
ISBN: 978-0136108863
8th Edition
Authors: Walter T. Harrison, Charles T. Horngren, William Bill Thomas
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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