Question

The Green Fiddle has current liabilities of $28,000, sales of $156,900, and cost of goods sold of $62,400. The current ratio is 1.22 and the quick ratio is .71. How many days on average does it take to sell the inventory

Answer 1

Answer: 83.53 days.

Explanation:

We would need to calculate the Current Assets as well as the Quick Assets.

Calculating the Current Assets we can use the Current ratio and Current Liabilities as follows,

Current Assets = Current Ratio * Current Liabilities

= 1.22 * 28,000

= $34,160

Then we calculate the Quick Assets which are essentially the most liquid assets being Cash and Cash Equivalents,

= Quick Ratio * Current Liabilities

= 0.71 * 28,000

= $19,880

Inventory will be Current Assets minus Quick Assets because Current Assets include all Current Assets whereas Quick Assets are Cash And Cash Equivalents Current Assets

= 34,160 - 19,880

= $14,280

We can then calculate the Inventory Turnover as,

= Cost of Goods sold / Inventory

= 62,400/14,280

= 4.36974789916 times.

Now we can finally calculate the days of Inventory by dividing the days in a year by the Turnover ratio. We will assume a 365 year.

= 365/4.36974789916

= 83.53 days.

It takes 83.53 days on average does it take to sell the inventory.