The Kretovich Company had a quick ratio of 1.4, a current ratio of 3.0, a days sales outstanding of 36.5 days (based on a 365-day year), total current assets of $810,000, and cash and marketable securities of $120,000. What were Kretovich’s annual sales?
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The Kretovich Company had a quick ratio of 1.4, a current ratio of 3.0, a days sales outstanding of 36.5 days (based on a 365-day year), total current assets of $810,000, and cash and marketable securities of $120,000. What were Kretovich’s annual sales? |
Explanation
DSO = Accounts receivable / Per day sales
36.5 = 258,000* / Per day sales
Per day sales = 258,000 / 36.5
Per day sales = 7068.493151
Annual sales = 365 x 7068.493151 = 2,580,000
Current ratio = CA/CL
3.0 = 810000 / CL
CL = 810000 / 3
CL = 270000
Quick Ratio = QA / CL
1.4 = QA / 270000
QA = 270000 x 1.4
QA = 378000
*Accounts Receivable = QA - Cash and market securities = 378,000 - 120,000 = 258,000
Answer
Answer
2,580,000
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