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Financial Measurements and Ratios

49. Income statements for LaRue Co. show the following:

2011 2010 2009
Sales (net) ..................... $500,000 $400,000 $350,000
Cost of goods sold:
Beginning inventory ............. 110,000 90,000 20,000
Purchases ....................... 420,000 330,000 370,000
$530,000 $420,000 $390,000
Ending inventory ................ 170,000 110,000 90,000
360,000 310,000 300,000
Gross profit .................... $140,000 $ 90,000 $ 50,000

From the data presented, calculate the following ratios for 2011 and 2010:
(1) Inventory turnover rate.
(2) Number of days' sales in inventories.
(3) Gross profit margin on sales.

50. The following are comparative data for Gates Company for the three-year period 2009-2011:

Income Statement Data
2011 2010 2009
Net sales (80% are on credit each period) .........................
$900,000
$720,000
$840,000
Net purchases ................... 480,000 390,000 330,000

Balance Sheet Data
Accounts receivable, December 31 $150,000 $132,000 $126,000

Compute the following measurements for 2011 and 2010:
(1) The receivables turnover rate.
(2) The average collection period for accounts receivable.

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Solution Summary

The receivables turnover rates for measurements are computed. The average collection periods for account receivables are determined.

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