The following financial data relate to Big Bang Pty Ltd for the years ended 30 June Year 2019 and 30 June Year 2018
PART A Financial Ratios and Financial Statement analysis
The following financial data relate to Big Bang Pty Ltd for the years ended 30 June Year 2019 and 30 June Year 2018.
Additional information:
The amount of Accounts receivables at 30 June Year 2017 was $78 000 (net). The inventory figure at 30 June Year 2017 was $130 000. The company provides its credit customers 30 days to pay. The average inventory turnover for the industry in which the company operates is 101 days.
a. You are required to explain and calculate the following ratios for the years ended 30 June Year 2019 and 30 June Year 2018:
– current ratio;
– quick ratio;
– accounts receivable turnover (times and in days); and
– inventory turnover (times and in days).
b. Comment on the short-term solvency, including the efficiency of the business, given the ratio results obtained in your answer in part a.
Hint
Accounts & Finance "Accounts receivable turnover is an activity ratio or an efficiency ratio which measures the number of times a business can turn its accounts receivable into cash during a period. Account receivable turnover ratio = Net credit sales / Average accounts receivable The quick ratio or acid test ratio is a liquidity ratio that measures ...
"Accounts receivable turnover is an activity ratio or an efficiency ratio which measures the number of times a business can turn its accounts receivable into cash during a period.
Account receivable turnover ratio = Net credit sales / Average accounts receivable
The quick ratio or acid test ratio is a liquidity ratio that measures the ability of a company to pay its current liabilities when they come due with only quick assets.
Quick ratio = (Cash + short term investments + cash equivalents + current receivables) / Current liabilities
Current ratio is an efficiency and a liquidity ratio which measures a firm’s ability to pay off its short-term liabilities with its current assets.
And,
Current ratio = Current assets / Current liabilities"
Login | Sign Up
