Question

Nikola Motors has a quick ratio of 2.00; $38,250 in cash; $21,250 in accounts receivable; some inventory; total current assets of $85,000; and total current liabilities of $29,750. In its most recent annual report, Nikola reported annual sales of $100,000 and a cost of goods sold equal to 65% of annual sales.
How many times is Nikola Motors selling and replacing its inventory?

Answer 1

Answe2.55 times

Explanation:

Current assets represent the resources of short-term nature which a business expects to convert back to cash between a year. They include inventory, receivables.

Inventory turnover is the average number of days it takes a Nikola Motors to sell its its stock and replenish it. This can be determined by either working it out in number of times the stock is sold and replenished or the length of days its takes to do same.

The formula for both are given below:

Inventory turnover( no of times) = Cost of goods sold / average inventory

                                                   = x number of times

Inventory days = (Average inventory/ Cost of goods sold) *365 days

                            = number of days

Note: The inventory figure was not given in the question, but we can work it out;

Current assets= cash + inventory + receivables

85,000 = 38,250 + 21,250 + y                           Lets "y "demote inventory

y = 85,000 - 38250 - 21, 250

y= 25,500

Also we need to work out cost of sold;

Cost of goods sold = 65% × 100,000

                                = 65,000

Now we can work out the inventory turnover;

Inventory turnover =  65,000/25,500

                             =  2.55 times

Nikola Motors is seling and replacing its inventory 2.55 times