A little off-topic, but ... In studying for the DANTES Principles of Finance exam, I came across this question (actually found on the TECEP practice exam for the same course): I must be missing the obvious, but how the heck can you derive the firm's level of sales from this? Apparently, there is supposed a correct answer, as all 4 possible choices (its multiple choice) show a number (according to the answer key, the correct answer is a level of sales of $3.2M or so - don't have it in front of me). I can use the current ratio along with the current liabilities to derive the current assets, but that doesn't really give me much. Same thing with the quick ratio and current liabilities - I can derive the cash/marketable securities, but to what end? The inventory turnover is defined as COGS divided by average inventory level (if memory serves me correctly) - but I can't see how this will help me derive the level of sales. Anyone have a clue? Cheers.
First, 2.4 x 600,000 to get current assets. Second, 1.5 x 600,000 to get quick assets. Quick assets are cash, accounts receivable, and notes receivable essentially current assets minus inventory. Third, current assets 1440,000 minus quick assets 900,000 to give you $540,000 inventory. Since, inventory turnover is sales divided by inventory. Therefore, sales/540,000=6. Sales= 540,000 x 6 = 3,240,000. Hope this helps.
Thanks, Tsling. I'm not quite sure I understand how current minus quick assets equals "inventory", but I will study this in more detail when I am awake (lol).
