Critically evaluate the ratios calculated below, and comment on your analysis. The current ratio is estimated as follows:Current ratioParticularsAmount (2019)Amount (2020)Current Assets1,779,0974,287,653(/) current liabilities1,591, 7912,132,524Current Ratio1.122.01The current ratio in both years is satisfactory but a higher ratio is more preferred.The ratio is estimated as follows:Accounts Receivable TurnoverParticularsAmount (2019)Amount (2020)Sales4,801,1397,237,427(/) Average Accounts Receivable855,169815,714Accounts Receivable Turnover5.618.87The ratio in 2020 depicts that the corporation makes better use of its credit sales and therefore, it is moreefficient in 2020.The ratio is estimated as follows:Accounts Payable TurnoverParticularsAmount (2019)Amount (2020)Total Purchases4,925,1737,138,260(/) Average Accounts Payable746,358651,619Accounts Payable Turnover6.6010.95A high ratio is better therefore, the corporation is more efficient in 2020.The ratio is estimated as follows:Inventory TurnoverParticularsAmount (2019)Amount (2020)Cost of Goods Sold3,917,1444,387,010(/) Average Inventory567,979580,312Inventory Turnover6.907.56The corporation is more efficient in 2020 as compared to 2019. The gross profit is estimated as follows:Gross Profit MarginParticularsAmount (2019)Amount (2020)Revenues4,801,1397,237,427(-) Cost of Sales-3,917,144-4,387,010883,9952,850,417(/) RevenuesGross Profit Margin4,801,1397,237,42718.4139.38The gross profit margin has increased in 2020, that is in 2020 there is more revenue.The net profit margin is as follows:Net Profit MarginParticularsAmount (2019)Amount (2020)367,5461,788,830Net profit(/) RevenuesNet Profit Margin4,801,1397,237,4277.6624.72The net profit margin has increaséd from 2019 to 2020 due to the increase in revenues and net profit.The return on capital employed is computed as follows:Return on capital employedAmount (2019)ParticularsAmount (2020)EBIT523,5882,165,551(/) Current Assets - currentliabilities4,096,4146,573,440Return on capital employed0.130.33The return on capital employed has increased from 2019 to 2020 which means the earnings have increasedfrom the capital employed.The quick ratio is computed as follows:Quick ratioParticularsAmount (2019)Amount (2020)1,149,2018,175,235Current Assets - Inventories1,591,7912,132,524(7) current liabilities0.723.83Quick RatioA quick ratio of less than 1 is not ideal, therefore, the corporation was less liquid in 2019 as compared to 2020.

Following is the answer to the question.

The current ratio is estimated as follows: Current ratio Particulars Amount (2019) Amount (2020) Current Assets 1,779,097 4,287,653 (/) current liabilities 1,591,791 2,132,524 Current Ratio 1.12 2.01 The current ratio in both years is satisfactory but a higher ratio is more preferred. The ratio is estimated as follows: Accounts Receivable Turnover Particulars Amount (2019) Amount (2020) Sales 4,801,139 7,237,427 (/) Average Accounts Receivable 855,169 815,714 Accounts Receivable Turnover 5.61 8.87 The ratio in 2020 depicts that the corporation makes better use of its credit sales and therefore, it is more efficient in 2020. The ratio is estimated as follows: Accounts Payable Turnover Particulars Amount (2019) Amount (2020) Total Purchases 4,925,173 7,138,260 (/) Average Accounts Payable 746,358 651,619 Accounts Payable Turnover 6.60 10.95 A high ratio is better therefore, the corporation is more efficient in 2020. The ratio is estimated as follows: Inventory Turnover Amount (2019) Particulars Amount (2020) Cost of Goods Sold 3,917,144 4,387,010 (/) Average Inventory 567,979 580,312 Inventory Turnover 6.90 7.56 The corporation is more efficient in 2020 as compared to 2019.

The current ratio is estimated as follows: Current ratio Particulars Amount (2019) Amount (2020) Current Assets 1,779,097 4,287,653 (/) current liabilities 1,591,791 2,132,524 Current Ratio 1.12 2.01 The current ratio in both years is satisfactory but a higher ratio is more preferred. The ratio is estimated as follows: Accounts Receivable Turnover Particulars Amount (2019) Amount (2020) Sales 4,801,139 7,237,427 (/) Average Accounts Receivable 855,169 815,714 Accounts Receivable Turnover 5.61 8.87 The ratio in 2020 depicts that the corporation makes better use of its credit sales and therefore, it is more efficient in 2020. The ratio is estimated as follows: Accounts Payable Turnover Particulars Amount (2019) Amount (2020) Total Purchases 4,925,173 7,138,260 (/) Average Accounts Payable 746,358 651,619 Accounts Payable Turnover 6.60 10.95 A high ratio is better therefore, the corporation is more efficient in 2020. The ratio is estimated as follows: Inventory Turnover Amount (2019) Particulars Amount (2020) Cost of Goods Sold 3,917,144 4,387,010 (/) Average Inventory 567,979 580,312 Inventory Turnover 6.90 7.56 The corporation is more efficient in 2020 as compared to 2019.

Principles of Accounting Volume 1

19th Edition

ISBN:9781947172685

Author:OpenStax

Publisher:OpenStax

Chapter9: Accounting For Receivables

Section: Chapter Questions

Problem 10PA: Elegant Universal uses the balance sheet aging method to account for uncollectible debt on...

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