Liquidity and asset management ratios oasis products, inc. has current liabilities = $11.7 million, current ratio = 1.60 times, inventory turnover ratio = 12.1 times, average collection period = 21 days, and sales = $119 million. what is the value of their cash and marketable securities? (consider a 365 days a year.)

 The value of cash and marketable securities amounts to 2.01 million

Explanation:

The formula of Current Ratio is:

Current Ratio = Current Assets /  Current Liabilities

Current Assets = Current Ratio × Current Liabilities

                         = 1.60 × $11.7

                         = $18.72 million

Computation of Inventory:

Inventory turnover ratio  = Sales / Inventory

12.1 = $119/ Inventory

Inventory = $119 / 12.1

                 = 9.83 million

Computation of Accounts Receivable:

Average collection period = 365 / Accounts Receivable Turnover ratio

21 = 365 / Accounts Receivable Turnover ratio

Accounts Receivable Turnover ratio = 365 / 21

= 17.38

Accounts Receivable Turnover ratio = Sales / Accounts Receivable

                                                             = $119 / Accounts ReceivableTurnover ratio

                     Accounts Receivable    = $119 / 17.28

                                                             = $6.88 million

Computation of Cash and Marketable Securities:    

Current Assets = Inventory + Accounts Receivable + Cash and Marketable Securities

Cash and Marketable Securities =  Current Assets -Inventory - Accounts Receivable

                                                      = 18.72 -9.83 - 6.88

                                                     = 2.01 million

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