(a)
The financial ratio which evaluates the ability of a company to pay off the debt obligations which mature within one year, or within completion of the operating cycle, is referred to as current ratio. This ratio assesses the liquidity of a company.
Formula of current ratio:
Accounts receivable turnover:
Accounts receivable turnover is a liquidity measure of accounts receivable in times, which is calculated by dividing the net credit sales by the average amount of net accounts receivables. In other words, it indicates the number of times the average amount of net accounts receivables collected during a particular period.
To identify: Whether Incorporation M’s short-term liquidity position improving or deteriorating in 2017.
(b)
To identify: Whether changes in turnover ratios affect profitability.
(c)
To describe: The ways to improve Incorporation M’s receivables and inventory turnover ratio.
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Financial Accounting: Tools For Business Decisionmaking, Eighth Edition Wileyplus Blackboard Card
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