Question

3. Asset management ratios Asset management ratios are used to measure how effectively a firm manages its assets, by relating the amount a firm has invested in a particular type of asset (or group of assets) to the amount of revenues the asset is generating. Examples of asset management ratios include the average collection period (also called the days sales outstanding ratio), the inventory turnover ratio, the fixed asset turnover ratio, and the total asset turnover ratio. Consider the following case: Monroe Manufacturing has a quick ratio of 2.00x, $34,875 in cash, $19,375 in accounts receivable, some inventory, total current assets of $77,500, and total current liabilities of $27,125. The company reported annual sales of $800,000 in the most recent annual report. Over the past year, how often did Monroe Manufacturing sell and replace its inventory?

Answer 1

Answer:

INVENTORY TURNOVER

Sales : $800,000

Average Inventory  $23,250

Inventory Turnover = $800,000 / $23,250 = 34,41 days.

Explanation:

To find how often the company sell and replace its inventory it's necessary to divide the total sales by the inventory balance, as detailed above.

To find the inventory balance it's necessary consider the total current assets minus the Cash balance and the accounts receivable balance.

Detailed below:

Cash $34,875

Accounts Receivable $ 19,375

Total Current Assets : $77,500

Inventory : 77,500 - 19,375 - 34,875 = $23,250 Inventory.