Question

Franklin Aerospace has a quick ratio of 2.00x, $36,225 in cash, $20,125 in accounts receivable, some inventory, total current assets of $80,500, and total current liabilities of $28,175. The company reported annual sales of $200,000 in the most recent annual report. Over the past year, how often did Franklin Aerospace sell and replace its inventory? 2.86x 8.28x 8.01x 9.11x

Answer 1

Answer:

8.28 times

Explanation:

Quick Ratio = $\frac{CA\ -\ Inventory\ - Prepaid\ Expenses}{Current\ Liabilities}$

wherein, CA = Current Assets

Inventory =  Total Current assets - cash - accounts receivables

Inventory = 80,500 - 36225 - 20125 = $24,150

Inventory Turnover is used as a measure to know how frequently a firm uses and sells inventory in a given period of time.

A high inventory turnover ratio depicts how rapidly inventory is being sold. So higher the ratio, the better it is for a firm.

Inventory Turnover Ratio = $\frac{Net\ Sales}{Average\ Stock}$ = $\frac{200,000}{24,150}$  = 8.28 times approx.