Question

The following financial data were taken from the annual financial statements of Smith corporation:

2007 2008 2009

Current assets $450,000 $400,000 $500,000
Current liabilities $390,000 $300,000 $340,000
Sales $1,450,000 $1,500,000 $1,400,000
Cost of goods sold $1,180,000 $1,020,000 $1,120,000
Inventory $280,000 $200,000 $250,000
Accounts receivable $120,000 $110,000 $105,000

a. Based on the data, calculate the following for 2008 and 2009:
1. Working capital
2. Current ratio
3. Acid-test ratio
4. Accounts receivable turnover
5. Merchandise inventory turnover
6. Inventory turnover in days

b. Evaluate the results of your computations in regard to the short-term liquidity of the firm.