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19 November, 13:54

Liquidity and Asset Management Ratios Oasis Products, Inc. has current liabilities = $11.7 million, current ratio = 1.60 times, inventory turnover ratio = 12.1 times, average collection period = 21 days, and sales = $119 million. What is the value of their cash and marketable securities? (Consider a 365 days a year.)

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  1. 19 November, 14:02
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    The value of cash and marketable securities amounts to 2.01 million

    Explanation:

    The formula of Current Ratio is:

    Current Ratio = Current Assets / Current Liabilities

    Current Assets = Current Ratio * Current Liabilities

    = 1.60 * $11.7

    = $18.72 million

    Computation of Inventory:

    Inventory turnover ratio = Sales / Inventory

    12.1 = $119 / Inventory

    Inventory = $119 / 12.1

    = 9.83 million

    Computation of Accounts Receivable:

    Average collection period = 365 / Accounts Receivable Turnover ratio

    21 = 365 / Accounts Receivable Turnover ratio

    Accounts Receivable Turnover ratio = 365 / 21

    = 17.38

    Accounts Receivable Turnover ratio = Sales / Accounts Receivable

    = $119 / Accounts ReceivableTurnover ratio

    Accounts Receivable = $119 / 17.28

    = $6.88 million

    Computation of Cash and Marketable Securities:

    Current Assets = Inventory + Accounts Receivable + Cash and Marketable Securities

    Cash and Marketable Securities = Current Assets - Inventory - Accounts Receivable

    = 18.72 - 9.83 - 6.88

    = 2.01 million
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