Question

Note the industry average ratios below:

A/R days (based on average balances) = 57 days
A/P days (based on average balances) = 23 days
Current ratio (based on ending balance) = 1.8x
Based on Acme’s A/R days, A/P days and Current ratios for the nine months ending September 30, 2017, which of the following conclusions is most accurate? Assume 273 days in the nine months ending September 30, 2017 and 365 days in the year.
Compared to the industry average:
A. Acme has more favorable collection terms but less favorable payment terms with vendors.
B. Acme has more favorable collection terms and more favorable payment terms with vendors.
C. Acme has less favorable collection terms and less favorable payment terms with vendors.
D. Acme has less favorable payment terms with vendors and a less favorable current ratio.
E. Acme has less favorable collection terms and less favorable current ratio.

Answer 1

Without Acme's actual financial ratios for comparison, it is not possible to determine which statement accurately describes how Acme's A/R days, A/P days, and Current Ratio compare to the industry averages.

Step-by-step explanation:

To determine which conclusion is most accurate in comparing Acme's performance to the industry average based on Accounts Receivable (A/R) days, Accounts Payable (A/P) days, and Current Ratio, we would need Acme's actual figures for these metrics. However, these values are not provided in the question or additional information given. Without Acme's actual A/R days, A/P days, and Current Ratio figures, it is impossible to definitively select one of the conclusions (A to E) as the most accurate comparison to the industry average.

Answer 2

The most accurate conclusion is that Acme has more favorable payment terms with vendors but has a less favorable current ratio compared to the industry average. The collection terms cannot be determined.

Step-by-step explanation:

To determine the most accurate conclusion based on Acme's A/R days, A/P days, and Current ratios, we need to compare them to the industry averages. The industry average A/R days is 57 days, which means it takes 57 days on average for Acme to collect its accounts receivable. Since Acme's A/R days are not given, we cannot determine whether their collection terms are more or less favorable compared to the industry average.

However, we are given that Acme's A/P days are 23 days, which means it takes 23 days on average for Acme to pay its accounts payable. This is lower than the industry average A/P days, indicating that Acme has more favorable payment terms with vendors compared to the industry average.

Lastly, we are given that Acme's current ratio is 1.8x, which is lower than the industry average current ratio. A current ratio measures a company's ability to pay its short-term obligations. A higher current ratio is generally considered more favorable, as it indicates a company has more assets compared to its liabilities. Therefore, the most accurate conclusion is that Acme has less favorable current ratio compared to the industry average.

In conclusion, based on the information provided, the most accurate conclusion is that Acme has more favorable payment terms with vendors (A/P days) compared to the industry average, but has a less favorable current ratio compared to the industry average. The collection terms (A/R days) cannot be determined.