Question

Financial statements for Askew Industries for 2021 are shown below (in thousands): 2021 Income Statement Net sales $ 9,200 Cost of goods sold (6,350) Gross profit 2,850 Operating expenses (2,150) Interest expense (220) Income tax expense (192) Net income $ 288 Comparative Balance Sheets Dec. 31 2021 2020 Assets Cash Accounts receivable Inventory Property, plant, and equipment (net) $ 620 620 820 2,200 $4,260 $ 520 420 620 2,300 $3,860 Liabilities and Shareholders' Equity Current liabilities Bonds payable Common stock Retained earnings $1,220 1,500 620 920 $ 4,260 $ 970 1,500 620 770 $3,860 Required: Calculate the following ratios for 2021. (Consider 365 days a year. Do not round intermediate calculations and round your final answers to 2 decimal places.)

Answer 1

First 5 ratios are being calculated here:

1. Inventory turnover ratio = Cost of the goods sold / Average inventory

where, Average inventory = Beginning inventory + Ending inventory / 2

For 2021:

Ending inventory = $820, Beginning inventory = Ending inventory of previous year = $620

Average inventory = ($820 + $620) / 2 = $1440 / 2 = $720

Cost of the goods sold = $6350

Putting these values in the inventory turnover ratio formula, we get,

Inventory turnover ratio = $6350 / $720 = 8.82

2. Average days in inventory = 365 / Inventory turnover ratio

Inventory turnover ratio = 8.82 times ( as computed in point (1) above)

Putting these values in average days in inventory ratio formula, we get,

Average days in inventory = 365 / 8.82 = 41.38 days

3. Receivables turnover ratio = Sales / Average accounts receivables

where, Average accounts receivables = Beginning accounts receivables + Ending receivables / 2

For 2021:

Beginning accounts receivables = $420, Ending accounts receivables = $620

Average accounts receivables = ($420 + $620) / 2 = $1040 / 2 = $520

Sales = $9200

Putting these values in the receivables turnover ratio formula, we get,

Accounts receivables turnover ratio = $9200 / $520 = 17.69

4. Average collection period = 365 / Accounts receivable turnover ratio

For 2021:

Accounts receivable turnover ratio = 17.69 times ( as computed in point (3) above)

Putting these values in the Average collection period formula, we get,

Average collection period = 365 / 17.69 = 20.63 days

5. Total assets turnover ratio = Net Sales / Average total assets * 100

where, Average total assets = Beginning assets (2020) + Ending assets (2021) / 2

So, Average assets = ($3860 + $4260) / 2 = $8120 / 2 = $4060

Net sales = $9200

Now, putting these values in the above formula, we get,

Total assets turnover ratio = $9200 / $4060 * 100 = 2.27