Question

Asset management ratios are used to measure how effectively a firm manages its assets, by relating the amount a firm has invested in a particular type of asset (or group of assets) to the amount of revenues the asset is generating. Examples of asset management ratios include the average collection period (also called the days sales outstanding ratio), the inventory turnover ratio, the fixed asset turnover ratio, and the total asset turnover ratio. Consider the following case:

Crawford Construction has a quick ratio of 2.00x', $36,225 in cash, $20,125 in accounts receivable, some inventory, total current assets of $80,500, and total current liabilities of $28,175. The company reported annual sales Of $100,000 in the most recent annual report.

Over the past year, how Often did Crawford Construction sell and replace its inventory?
a. 4.14 x
b. 4.55 x
c. 2.86 x
d. 8.01 x

Answer 1

Crawford Construction sell and replace its inventory 4.14 x

Step-by-step explanation:

In order to calculate how Often did Crawford Construction sell and replace its inventory we would have to calculate the Inventory turnover ratio as follows:

Inventory turnover ratio=Sales / Inventory

Sales=$100,000

Inventory=Total current assets - (Cash + A/R)

Inventory=$80,500 - ($36,225 + $20,125)

Inventory=$24,150

Therefore, Inventory turnover ratio=$100,000/$24,150

Inventory turnover ratio=4.14

Crawford Construction sell and replace its inventory 4.14 x