Question

AAA's inventory turnover ratio is 20.00 based on sales of $28,400,000. The firm's current ratio equals 4.16 with current liabilities equal to $820,000. If the firm's cash and marketable securities equal $657,096, what is the firm's days sales outstanding? (Round your answer to two decimal places.)
A) 15.66
B) 35.40
C) 43.84
D) 25.59
E) 17.15

Answer 1

Answer:

= 17.15 days (approx)

Explanation:

Given:

inventory turnover ratio = 20

Current ratio = 4.16

Current liabilities = $820,000.

Cash and Marketable securities = $657,096

Net sales = $28,400,000

Per day sale = ?

Calculation:

Current ratio = Current assets / current Liabilities

              4.16 = Current assets / $820,000

4.16 x $820,000 = Current assets

$3,411,200 = Current assets

Inventory turnover ratio = Net sales / Average Inventory

                                  20 =  $28,400,000 / Inventory

        $28,400,000 / 20 = Inventory

                   $1,420,000 = Inventory

Average Receivable =  current assets - Cash and Marketable securities -Inventories

                   = $3,411,200 - $657,096 - $1,420,000

Average Receivable = $1,334,104

Outstanding daily sales = (Average receivables / Net sales )Number of days in a year

= $1,334,104 / $28,400,000)365

= 17.15 days (approx)