ABC Co. has approached you for working capital facility. They have presented to the details of their financials as follows for the year 2008:
Sundry Creditors : 344,000; Prepaid Expenses: 29,000; Tax Dues: 48,000; Liability for Expenses: 63,000; Equipment Loan: 100,000- Term Loan: 300,000; Deposits with Banks: 100,000; FG: 394,000; Plant & Equipments: 173000; Land and Building: 674,000: Sundry Debtors: 471,000; Raw Materials: 432,000; Capital (Equity): 1,468,000; Cash:50,000;
On a further verification and discussion with them, you have come to know of the following additional details for transactions not accounted for;
The Company has supplied materials of 187,000 to its customer the value of which has been fully paid for but it is in transit on the high seas; similarly raw materials of value 234,000- purchased (on 30 days credit) from Saudi Arabian Supplier is on the high seas; Defective Raw material of 97,400- received as part of a purchase of 189,000- on 60 days credit has been returned;. A Sales Return of 72,000- (fully paid for by the Customer) has also been received but kept aside in the warehouse.
Incorporate the above information and arrive at the correct position of financials so that you will be able to compare the performance with that of the previous year (2007) for which the data is as follows:-

Liabilities Amount Assets Amount
Capital
Term Loan
Sundry Creditors
Liabilities for Expenses
1,468,000-
360,000-
275,000-
87,000- Cash
Land and Building
Plant and Equipment
Sundry Debtors
Prepaid Expenses
Raw Materials
Finished Goods
Deposits 8,000-
595,000-
170,000-
452,000-
43,000-
417,000-
333,000-
172,000-
2,190,000- 2,190,000-


…2
-2-
INCOME STATEMENT
2008 2007
Sales 3,480,000- 2,610,000-
COGS 2,436,000- 1,957,500-
Gross Profit 1,044,000- 652,500-
Selling & Administrative Exp 626,400- 391,500-
Net Profit 417,600- 261,000-
What will values be for

1) Quick Ratio
2) Debt-Equity Ratio
3) Inventory Turnover Ratio
4) Collection Period
5) Payment Period
6) Working Capital Required
7) Gross Working Capital
8) Net Working Capital

I attach your answer.

For future reference investopedia is a great resource to use to get all of those financial ratios and then some. They will explain how to work them out and interpret them.

I attach your answer.

It would have been better if you had asked for the attempt made by OP. However, there are a few points in your answer which need your consideration.

1. In calculating debt equity ratio, you have ignored the fact that equity for both the years is the same at $1,468,000. It does not include net income of $417,600 for the year 2008. How is that possible?

2. In calculating inventory turnover ratio you have taken the figure of finished goods only? Any specific reason for excluding raw materials inventory?

3. Working capital required on (6) is to be based on the requirements of the firm as they are requesting for working capital finance.

2. In calculating inventory turnover ratio you have taken the figure of finished goods only? Any specific reason for excluding raw materials inventory?


I would agree with using finished goods only, since inventory turnover is showing a relationship to sales (how many times you've "sold inventory"), and raw materials are not sold.

Perhaps I am not as intelligent as you are but I think without raw materials and work in process, how do you expect to get finished goods.

As far as my limited knowledge goes Inventory also includes raw materials and work in process.

If you include raw materials in inventory, the time taken to convert raw materials into finished goods can be helpful for making decisions.

I can see the point in wanting a total conversion cycle. But since turnover is indicating how fast inventory is selling, I don't get the idea of adding them. I could more see them being done individually.

None of my cost books, including the big more advanced one, has turnover for manufacturing inventories in it. (This is probably only the second time ever I've seen it asked in homework.) So I tried to look online without much luck, but I did find one source that talked of them being calculated individually.