Answer to Question #57745 in Finance for Noja
Annual sales RM1,200,000
Current liabilities RM375,000
Days sales outstanding (DSO) (365-day year) 40
Inventory Turnover ratio 4.8
Current ratio 1.2
The company’s current assets consist of cash, inventories, and accounts receivable.
How much cash does the company have on its balance sheet?
Current Ratio = Current Assets / Current Liabilities
Current Assets = Current Liabilities * Current Ratio = RM375,000 * 1.2 = RM450,000
Days Sales Outstanding = (Accounts Receivable / Annual Sales) * 365
Accounts Receivable = DSO * Annual Sales / 365 = 40 * RM1,200,000 / 365 = RM131,507
Inventory Turnover Ratio = Annual Sales / Average Inventory
Average Inventory = Annual Sales / Inventory Turnover Ratio = RM1,200,000 / 4.8 = RM250,000
According to the assignment:
Current Assets = Cash + Inventories + Accounts Receivable
Cash = Current Assets - Inventories - Account Receivable = RM450,000 - RM250,000 - RM131,507 = RM68,493
The answer is:
The company has RM68,493 cash on its balance sheet
Dear Faid Al Buraihi,
You're welcome. We are glad to be helpful.
If you liked our service please press like-button beside answer field. Thank you!
That is really very helpful.... many thanks