Chapter 9, Problem P9.34APGA

Using ratio data to evaluate a company’s financial position

Learning Objective 5 1. Acid-test ratio (2018) 0.88

The comparative financial statements of Norfolk Cosmetic Supply for 2018, 2017, and 2016 include the data shown here:

	2018 2017 2016
Balance sheet partial Current Assets: Cash Short-term Investments Accounts Receivable, Net Merchandise Inventory Prepaid Expenses Total Current Assets Total Current Liabilities Income statement-partial Net Sales (all on account)	$70,000 $ 60,000 $50,000 140,000 170,000 120,000 280,000 240,000 260,000 355,000 330,000 310,000 70,000 35,000 35,000 915,000 835,000 775,000 560,000 630,000 640,000 5,890,000 5,130,000 4,210,000

Requirements
1. Compute these ratios for 2018 and 2017.
a. Acid-test ratio (Round to two decimals.)
b. Accounts receivable turnover (Round to two decimals.)
c. Days’ sales in receivable (Round to the nearest whole day.)
2. Considering each ratio individually, which ratios improved from 2017 to 2018 and which ratios deteriorated? Is the trend favorable or unfavorable for the company?