Question: Shown below are selected financial data for AB and XY Limited at the end of the current year: AB Ltd XY Ltd Net credit sales
Shown below are selected financial data for AB and XY Limited at the end of the current year:
AB Ltd
XY Ltd
Net credit sales
$675,000
$560,000
Cost of goods sold
504,000
480,000
Cash
51,000
20,000
Accounts receivable
75,000
70,000
Inventory
84,000
160,000
Current liabilities
105,000
100,000
Required:
a) For each of the two companies, compute the following:
1. Working capital
2. Current ratio
3. Quick ratio
4. Inventory turnover ratio and average number of days required to turn over inventory
5. Accounts receivable ratio and average accounts receivable collection period.
b) From the viewpoint of a short-term creditor, comment on the quality of each company's
working capital. To which company would you prefer to sell $20,000 in goods on a 30-day
open account?
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