The 2021 income statement of Adrian Express reports sales of $17,262,000, cost of goods sold of $10,624,000, and net income of $1,640,000. Balance sheet information is provided in the following table. Adrian Express
Balance Sheets
December 31, 2018 and 2017
2018 2017
Assets
Current assets: 510,000 670,000
Cash 1,220,000 910,000
Accounts receivable 1,620,000 1,310,000
Inventory 4,710,000 4,150,000
Long-term assets
Total assets $8,060,000 $7,040,000
Liabilities and Stockholders' Equity
Current liabilities s $1,930,000 $1,570,000
Long-term liabilities 2,270,000 2,310,000
Common stock 1,820,000 1,820,000
Retained earning 2,040,000 1,340,000
Total liabilities and stockholders'
equity $8,060,000 $7,040,000
Industry averages for the following four risk ratios are as follows:
Average collection period 25 days
Average days in inventory 60 days
Current ratio 2 to 1
Debt to equity ratio 50%
Required:
Calculate the four risk ratios listed above for Adrian Express in 2018.

                                                      Industry average       Adrian Express

Average collection period                  25 days                     31 days

Average days in inventory                  60 days                    152 days

Current ratio                                             2                             3.91

Debt to equity ratio                               50%                          109%

Explanation:

Average collection period = (average accounts receivable / total net credit sales) x  365 days = {[(1,620,000 + 1,310,000) / 2] / 17,262,000} x 365 days = 30.98 ≈ 31 days

Average days in inventory = 365 days / inventory turnover

inventory turnover = COGS / average inventory = 10,624,000 / [(4,710,000 4,150,000) / 2] =  2.4

Average days in inventory = 365 days / 2.4 = 152 days

Current ratio = current assets / current liabilities = (cash + accounts receivable + inventory) / $1,930,000 = ($1,220,000 + $1,620,000 + $4,710,000) / $1,930,000 = $7,550,000 / $1,930,000 =3.91

Debt to equity ratio = total liabilities / stockholders' equity =  $4,200,000 / $3,860,000 = 1.09 or 109%    

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