Review of activity ratios



Q43. Review of activity ratios
Calculate the following activity ratios based on the information below:
(1) Assets turnover ratio
(2) Inventory turnover ratio
(3) Accounts receivable turnover ratio
(4) Accounts payable turnover ratio

Cash sales = $270,000
Credit sales = $1,080,000
Sales = $1,350,000
Cost of goods sold = $960,000
Credit purchases = $840,000
Average total assets = $900,000
Average inventory = $120,000
Average accounts receivable = $90,000
Average accounts payable = $80,000

A43.
(1) Assets turnover ratio
= Sales / Average total assets
= $1,350,000 / $900,000 = 1.5

(2) Inventory turnover ratio
= Cost of goods sold / Average inventory
= $960,000 / $120,000 = 8.0

(3) Accounts receivable turnover ratio
= Credit sales / Average accounts receivable
= $1,080,000 / $90,000 = 12.0

(4) Accounts payable turnover ratio
= Credit purchases / Average accounts payable
= $840,000 / $80,000 = 10.5