Page 470 - FM Integrated WorkBook STUDENT 2018-19
P. 470
Chapter 21
Chapter 7
Question 1
Current & quick ratios
A company has $25m of current assets, of which $5m are inventory. Its current
liabilities stand at $15m. Calculate the current and quick ratios.
Current ratio = $25m/$15m = 1.67
Quick ratio = ($25m – $5m) – $15m = 1.33
Question 2
Cash operating cycle
A company has provided the following information:
Raw material inventory holding period 25 days
Payables payment period 40 days
Production period (WIP) 5 days
Finished goods holding period 15 days
Receivables collection period 66 days
Calculate the length of the cash operating cycle.
Cash cycle = 25 – 40 + 5 + 15 + 66 = 71 days
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