a. The current ratio for the prior year is 1.10 ($8,400,030 / $7,620,300), and for the current year, it is 1.24 ($8,300,100 / $6,696,000).
b. Receivables turnover ratio for the current year is 3.20 times ($13,460,300 / $4,241,000).
c. Days to collect for the current year is approximately 114 days (365 days / 3.20).
d. Inventory turnover ratio for the current year is 8.14 times ($8,911,195 / $1,095,900).
e. Days to sell for the current year is approximately 44 days (365 days / 8.14).
a) Current Ratio:
- Current Year: Current Assets / Current Liabilities = 8,300,100 / 6,696,000 = 1.24
- Prior Year: Current Assets / Current Liabilities = 8,400,030 / 7,620,300 = 1.10
Interpretation: The current ratio has decreased from 1.10 to 1.24, indicating a slight improvement in Pelican's short-term liquidity. The company has more current assets relative to current liabilities, making it more able to meet its short-term obligations.
b) Receivables Turnover Ratio:
- Receivables Turnover = Sales Revenue / Average Accounts Receivable
- Average Accounts Receivable = (Beginning Accounts Receivable + Ending Accounts Receivable) / 2 = (4,670,000 + 3,812,000) / 2 = 4,241,000
- Receivables Turnover = 13,460,300 / 4,241,000 = 3.20
Interpretation: The receivables turnover ratio of 3.20 indicates that Pelican collects on its accounts receivable 3.2 times per year. This is a relatively good turnover rate, suggesting efficient credit management and swift collection of customer payments.
c) Days to Collect:
- Days to Collect = 365 days / Receivables Turnover
- Days to Collect = 365 days / 3.20 = 114 days
Interpretation: It takes Pelican an average of 114 days to collect on its accounts receivable. This is within a reasonable range and aligns with the industry average.
d) Inventory Turnover Ratio:
- Inventory Turnover Ratio = Cost of Goods Sold / Average Inventory
- Average Inventory = (Beginning Inventory + Ending Inventory) / 2
- = (932,360 + 1,259,440) / 2 = 1,095,900
- Inventory Turnover Ratio = 8,911,195 / 1,095,900 = 8.14
Interpretation: The inventory turnover ratio of 8.14 indicates that Pelican turns over its inventory 8.14 times per year. This is a high turnover rate, suggesting efficient inventory management and minimal stockpiling.
e) Days to Sell:
- Days to Sell = 365 days / Inventory Turnover Ratio
- Days to Sell = 365 days / 8.14 = 44 days
Interpretation: It takes Pelican an average of 44 days to sell its inventory. This is a relatively short period, suggesting efficient sales and low holding costs.