(Learning Objectives 1, 7: Show how to speed up cash flow from receivables;evaluate liquidity using ratios) The comparative financial statements of Diamond Pools, Inc.,for 2020, 2019, and 2018 included the following select data:Balance sheetCurrent assets:Cash...............................................Investment in trading securities......Receivables, net of allowancefor uncollectible accounts of $7,$6, and $4, respectivelyInventories .....................................Prepaid expenses............................Total current assets........................Total current liabilities.......................Income statementNet sales (all on account)...................(In millions)2020$ 9015027034050$ 900$ 550$7,7002019$ 9518028035540$ 950$ 640$5,3552018$ 6011523032535$ 765$ 650$4,745Requirements1. Compute the following ratios for 2020 and 2019:a. Current ratiob. Quick (acid-test) ratioc. Days’ sales outstanding2. Which ratios improved from 2019 to 2020 and which ratios deteriorated? Are each of thetrends favorable or unfavorable?3. Recommend two ways for Diamond Pools to improve cash flows from receivables
(Learning Objectives 1, 7: Show how to speed up cash flow from receivables;
evaluate
for 2020, 2019, and 2018 included the following select data:
Balance sheet
Current assets:
Cash...............................................
Investment in trading securities......
Receivables, net of allowance
for uncollectible accounts of $7,
$6, and $4, respectively
Inventories .....................................
Prepaid expenses............................
Total current assets........................
Total current liabilities.......................
Income statement
Net sales (all on account)...................
(In millions)
2020
$ 90
150
270
340
50
$ 900
$ 550
$7,700
2019
$ 95
180
280
355
40
$ 950
$ 640
$5,355
2018
$ 60
115
230
325
35
$ 765
$ 650
$4,745
Requirements
1. Compute the following ratios for 2020 and 2019:
a. Current ratio
b. Quick (acid-test) ratio
c. Days’ sales outstanding
2. Which ratios improved from 2019 to 2020 and which ratios deteriorated? Are each of the
trends favorable or unfavorable?
3. Recommend two ways for Diamond Pools to improve cash flows from receivables
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