Assume a firm’s inventory level of $18,000 represents 24 days' sales. What is the inventory turnover ratio?

Assume a firm’s inventory level of $18,000 represents 24 days' sales. What is the inventory turnover ratio?

Explanation
Annual cost of goods sold  = $18,000 × 365 / 24 = $273,750

Inventory turnover =	$273,750	= 15.21 times per year
	$18,000

The turnover rate can also be calculated as:

Inventory turnover	= Days in year / Days' sales in inventory
	= 365 / 24
	= 15.21

A firm has a long-term debt-equity ratio of .4. Shareholders’ equity is $1.03 million. Current assets are $230,000, and the current ratio is 2.0. The only current liabilities are notes payable. What is the total debt ratio?

 

Explanation

Long-term debt-equity ratio	= Long-term debt / Equity
Long-term debt	= Long-term debt-equity ratio × Equity
	= .4 × $1,030,000
	= $412,000

 

Current ratio	= Current assets / Current liabilities
Current liabilities	= Current assets / Current ratio
	= $230,000 / 2
	= $115,000

 

Total liabilities	= Current liabilities + Long-term debt
	= $115,000 + 412,000
	= $527,000

 

Total assets	= Total liabilities + Equity
	= $527,000 + 1,030,000
	= $1,557,000

 

Total debt ratio	= Total debt / Total assets
	= $527,000 / $1,557,000
	= .34