Harold Limited's condensed financial statements provide the following information: Instructions (a) Determine the following: 1. Current ratio
Question:
Harold Limited's condensed financial statements provide the following information:
Instructions
(a) Determine the following:
1. Current ratio at December 31, 2014
2. Acid-test ratio at December 31, 2014
3. Accounts receivable turnover for 2014
4. Inventory turnover for 2014
5. Days payables outstanding for 2014
6. Rate of return on assets for 2014
7. Profit margin on sales
(b) Prepare a brief evaluation of the financial condition of Harold Limited and of the adequacy of its profits.
(c) In examining the other current liabilities on Harold Limited's statement of financial position, you notice that unearned revenues have declined in the current year compared with the previous year. Is this a positive indicator about the client's liquidity? Explain.
Financial Statements Financial statements are the standardized formats to present the financial information related to a business or an organization for its users. Financial statements contain the historical information as well as current period’s financial...
Transcribed Image Text:
HAROLD LIMITED Statement of Financial Position Dec. 31, 2014 $ 52,000 198,000 80,000 440,000 3,000 773,000 857,000 $1,630,000 Dec. 31, 2013 Cash Accounts receivable (net) Fair value-net income investments (short-term) Inventory Prepaid expenses Total current assets Property, plant, and equipment (net) Total assets $60,000 80,000 40,000 360,000 7,000 547,000 853,000 $1,400,000 Accounts payable Other current liabilities Bonds payable Common shareholders' equity Total liabilities and shareholders' equity $220,000 20,000 400,000 990,000 $1,630,000 $145,000 15,000 400,000 840,000 $1,400,000 Income Statement For the Year Ended December 31, 2014 Sales Cost of goods sold Gross profit Selling and administrative expense Interest expense Net income $1,640,000 (800,000) 840,000 (440,000) (40,000) $ 360,000
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a 1 Current ratio 773000 240000 322 times 2 Acidtest ratio 52000 198000 80000 240000 138 times 3 Accounts receivable turnover 1640000 80000 198000 2 1...View the full answer
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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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