Liquidity and Asset Management Ratios Oasis Products, Inc. has current liabilities = $11.7 million, current ratio = 1.60 times, inventory turnover ratio = 12.1 times, average collection period = 21 days, and sales = $119 million. What is the value of their cash and marketable securities? (Consider a 365 days a year.)

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18 March, 16:12

Liquidity and Asset Management Ratios Oasis Products, Inc. has current liabilities = $11.7 million, current ratio = 1.60 times, inventory turnover ratio = 12.1 times, average collection period = 21 days, and sales = $119 million. What is the value of their cash and marketable securities? (Consider a 365 days a year.)

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Kathleen Farrell · Answer 1

The value of cash and marketable securities amounts to 2.01 million

Explanation:

The formula of Current Ratio is:

Current Ratio = Current Assets / Current Liabilities

Current Assets = Current Ratio * Current Liabilities

= 1.60 * $11.7

= $18.72 million

Computation of Inventory:

Inventory turnover ratio = Sales / Inventory

12.1 = $119 / Inventory

Inventory = $119 / 12.1

= 9.83 million

Computation of Accounts Receivable:

Average collection period = 365 / Accounts Receivable Turnover ratio

21 = 365 / Accounts Receivable Turnover ratio

Accounts Receivable Turnover ratio = 365 / 21

= 17.38

Accounts Receivable Turnover ratio = Sales / Accounts Receivable

= $119 / Accounts ReceivableTurnover ratio

Accounts Receivable = $119 / 17.28

= $6.88 million

Computation of Cash and Marketable Securities:

Current Assets = Inventory + Accounts Receivable + Cash and Marketable Securities

Cash and Marketable Securities = Current Assets - Inventory - Accounts Receivable

= 18.72 - 9.83 - 6.88

= 2.01 million