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The comparative financial statements of Lakeland Cosmetic Supply for 2012, 2011, and 2010 include the data shown here:
2012 2011 2010
Balance sheet—partial
Current assets:
Cash $ 90,000 $ 70,000 $ 30,000
Short-term investments 145,000 175,000 125,000 Receivables, net 290,000 260,000 250,000
Inventories 370,000 335,000 325,000
Prepaid expenses 60,000 15,000 50,000
Total current assets $955,000 $855,000 $780,000
Total current liabilities $560,000 $600,000 $690,000
Income statement—partial
Sales revenue (all on account) $5,860,000 $5,140,000 $4,200,000
Requirements:
1. Compute these ratios for 2012 and 2011:
a. Acid-test ratio
b. Days’ sales in receivables
c. Accounts receivable turnover
2. Considering each ratio individually, which ratios improved from 2011 to 2012 and which ratios deteriorated? Is the trend favorable or unfavorable for the company?
