Time In Community Values About Education Work Family Structu

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Time in Community values about education, work, family structure and power Contact with cultural, religious institutions’, holidays, food and clothing Population Effects of Trauma and Crisis Event Health Beliefs Oppression, discrimination, bias, and racism Language Spoken Home/Community Sheet1 Case 3 The following selected information is taken from the financial statements of Arnn Company for its most recent year of operations: Beginning balances: Inventory $ 200,000 Accounts Receivable 300,000 Ending Balances: Inventory $ 250,000 Accounts Receivable 400,000 Cash 100,000 Marketable securities (short-term) 200,000 Prepaid Expenses 50,000 Accounts Payable 175,000 Taxes Payable 85,000 Wages Payable 90,000 Short-term Loans Payable 50,000 During the year, Arnn had: Net Sales $ 2,450,000 COGS 1,300,000 Example ratio calculation: 1.

Compute the times interest earned ratio. Interest Expense $ 1,500.00 Income Before Taxes $ 400,000.00

Paper For Above instruction

The financial health and stability of a company are crucial indicators evaluated through various financial ratios. These ratios help investors, creditors, and management understand the company's ability to meet its obligations, manage assets efficiently, and sustain operations. In this analysis, I will compute several key financial ratios for Arnn Company based on the provided financial statements, including the current ratio, quick ratio, accounts receivable turnover, days in receivables, inventory turnover, and days in inventory. Each ratio provides unique insights into different aspects of the company's operational and financial performance.

1. Current Ratio

The current ratio measures a company's ability to pay short-term obligations with its short-term assets. It is calculated as:

Current Ratio = Current Assets / Current Liabilities

Using the provided balances, current assets include cash, accounts receivable, inventory, prepaid expenses, and marketable securities. Current liabilities encompass accounts payable, taxes payable, wages payable, and short-term loans payable.

Current Assets = $100,000 (Cash) + $400,000 (Accounts Receivable) + $250,000 (Inventory) + $50,000 (Prepaid Expenses) + $200,000 (Marketable Securities) = $1,000,000.

Current Liabilities = $175,000 (Accounts Payable) + $85,000 (Taxes Payable) + $90,000 (Wages Payable) + $50,000 (Short-term Loans Payable) = $400,000.

Current Ratio = $1,000,000 / $400,000 = 2.50.

The company's current ratio of 2.50 indicates it has $2.50 in current assets for every $1.00 of current liabilities, reflecting a robust liquidity position.

2. Quick or Acid-Test Ratio

The quick ratio assesses a company's immediate liquidity, excluding inventory and prepaid expenses which may not be as liquid. It is calculated as:

Quick Ratio = (Cash + Accounts Receivable + Marketable Securities) / Current Liabilities

Quick Assets = $100,000 (Cash) + $400,000 (Accounts Receivable) + $200,000 (Marketable Securities) = $700,000.

Quick Ratio = $700,000 / $400,000 = 1.75.

This ratio of 1.75 suggests that Arnn Company can cover its short-term obligations 1.75 times with its most liquid assets.

3. Accounts Receivable Turnover

This ratio measures how many times during the period the company collects its average accounts receivable. It is calculated as:

Accounts Receivable Turnover = Net Sales / Average Accounts Receivable

Average Accounts Receivable = (Beginning + Ending) / 2 = ($300,000 + $400,000) / 2 = $350,000.

Accounts Receivable Turnover = $2,450,000 / $350,000 ≈ 7 times.

A turnover of 7 indicates that the company collected its receivables about 7 times during the year, implying efficient collections and cash flow management.

4. Accounts Receivable Turnover in Days

This metric shows the average number of days it takes for the company to collect its receivables. Calculated as:

Days in Receivables = 365 / Accounts Receivable Turnover

Days in Receivables = 365 / 7 ≈ 52.14 days

This suggests that on average, it takes about 52 days for Arnn to collect its receivables, which is within typical industry standards depending on the sector.

5. Inventory Turnover

This ratio indicates how often inventory is sold and replaced during the period. The formula is:

Inventory Turnover = Cost of Goods Sold / Average Inventory

Average Inventory = ($200,000 + $250,000) / 2 = $225,000.

Inventory Turnover = $1,300,000 / $225,000 ≈ 5.78 times.

This turnover rate suggests the company sells and replenishes its inventory approximately 5.78 times annually, which supports efficient inventory management.

6. Inventory Turnover in Days

This metric indicates the average number of days to sell the inventory:

Days in Inventory = 365 / Inventory Turnover

Days in Inventory = 365 / 5.78 ≈ 63.2 days

Therefore, Arnn Company takes approximately 63 days to sell its inventory, offering insight into inventory holding periods and potential cash flow implications.

Conclusion

Overall, Arnn Company demonstrates healthy liquidity and operational efficiency based on these ratios. The current and quick ratios suggest solid liquidity positions, while inventory and receivables turnover ratios indicate effective asset management. However, examining industry benchmarks would provide more context for these findings. Continuous monitoring of these ratios can help the company's management maintain financial stability and identify areas for improvement.

References

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