The following is the extracted financial balances of Yates Pty Ltd over the past 3 years: 2020 2019 2018 Current ratio: 2.4 1.9 1.5 Quick ratio: 0.6 0.8 1.3 Accounts receivable turnover: 7.8 times 6.4 times 6.3 times Inventory turnover: 4.9 times 5.5 times 6.1 times Sales as a % of 2018 base year: 142% 121% 100% You may use the following formulas for your calculations: Current Ratio = Current Assets / Current Liabilities Quick Ratio = (Cash assets + Receivables) / Current Liabilities Debt Ratio = Total liabilities / Total assets Average collection period = 365 / Debtors turnover Accounts receivable (Debtors) turnover = Credit Sales / Accounts receivable Inventory turnover = Cost of Sales / Inventory Based on the information above, you are required to answer each of the following questions using the data above and explain your reasoning for each answer: 1. Are customers of Yates Pty Ltd paying their invoices faster or slower now than they did in 2018? (Compare the collection period given 365 days in a year) 2. Is it becoming easier or harder for Yates Pty Ltd to pay its invoices as they come due?
Added by Beth P.
Step 1
8 = 46.79 days - 2019: 365 / 6.4 = 57.03 days - 2018: 365 / 6.3 = 57.94 days From the calculations above, we can see that customers of Yates Pty Ltd are paying their invoices faster in 2020 compared to 2018. The average collection period has decreased from 57.94 Show more…
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