a. Calculate the quick ratio of company B in FY2020. State what factors need to be considered when evaluating company B?s short-term liquidity and analyse the impact of these factors on the short-term liquidity of Company B.

b. Calculate the interest coverage ratio of company B in FY2020. Analyse and evaluate the long-term solvency of company B.

c. Calculate the accounts receivable turnover of company B in FY2020. State what factors need to be considered when evaluating company B?s accounts receivable turnover and analyse the impact of these factors on the company B's accounts receivable turnover.

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Company A is a material supplier and intends to establish a long-term cooperative relationship with Company B. In order to establish a credit policy for Company B, Company A wants to analyse the solvency and operating capabilities of Company B. To this end, Company A collected the FY2020 financial statements of Company B. The relevant financial statement data and the information disclosed in the notes of the financial statements are as follows: Selected Balance Sheet Data ($000) Ending of the year Beginning of the year Cash and Cash Equivalents 100 100 Marketable securities 500 460 Accounts Receivable (net) 1500 1360 Notes Receivable 1350 1300 Prepaid Expense Inventory 150 130 1000 980 Current Assets 4600 4330 Current Liabilities 2350 2250 Selected Income Sheet Data ($000) Sales 14500 Interest expense Income Tax expense 500 32.5 Net Profit 97.5 The production and operation of Company B have seasonality. From March to October, each year is the peak operating season, and from November to February next year is the off-season. Company B record bad debt provision based on 5% of the balance of accounts receivable (including notes receivable, the same below). In recent years, the collection of accounts receivable of Company B has not been good. As of the end of FY2020, accounts receivable aged more than 3 years have reached 10% of the balance of accounts receivable. In order to control the growth of accounts receivable, Company B tightened its credit policy in FY2020, reducing the proportion of credit sale customers. Company B's capitalized interest of $100,000 for FY2020 is recorded to a fixed asset account on balance sheet. When calculating financial ratios, the balance sheet data involved would use the average of the beginning and end of the year balance. Company A is a material supplier and intends to establish a long-term cooperative relationship with Company B. In order to establish a credit policy for Company B, Company A wants to analyse the solvency and operating capabilities of Company B. To this end, Company A collected the FY2020 financial statements of Company B. The relevant financial statement data and the information disclosed in the notes of the financial statements are as follows: Selected Balance Sheet Data ($000) Ending of the year Beginning of the year Cash and Cash Equivalents 100 100 Marketable securities 500 460 Accounts Receivable (net) 1500 1360 Notes Receivable 1350 1300 Prepaid Expense Inventory 150 130 1000 980 Current Assets 4600 4330 Current Liabilities 2350 2250 Selected Income Sheet Data ($000) Sales 14500 Interest expense Income Tax expense 500 32.5 Net Profit 97.5 The production and operation of Company B have seasonality. From March to October, each year is the peak operating season, and from November to February next year is the off-season. Company B record bad debt provision based on 5% of the balance of accounts receivable (including notes receivable, the same below). In recent years, the collection of accounts receivable of Company B has not been good. As of the end of FY2020, accounts receivable aged more than 3 years have reached 10% of the balance of accounts receivable. In order to control the growth of accounts receivable, Company B tightened its credit policy in FY2020, reducing the proportion of credit sale customers. Company B's capitalized interest of $100,000 for FY2020 is recorded to a fixed asset account on balance sheet. When calculating financial ratios, the balance sheet data involved would use the average of the beginning and end of the year balance.

Answer rating: 100% (QA)

A Quick Ratio The quick ratio for the year 2020 is 151 which is healthy co... View the full answer