Oliver Incorporated has a current ratio = 1.6, and a quick ratio equal to 1.2. The company has $2 million in sales and its current liabilities are $1 million. What is the company's inventory turnover ratio?
A) 5.0
B) 5.2
C) 5.5
D) 6.0
E) 6.3

Question

Quizplus · Accepted Answer

The current ratio is calculated as current assets divided by current liabilities. Given the current ratio of 1.6 and current liabilities of $1 million, current assets are $1.6 million. The quick ratio is calculated as (current assets - inventory) divided by current liabilities. Given the quick ratio of 1.2, we can solve for inventory: $1.6 million - inventory = $1.2 million, so inventory = $0.4 million. The inventory turnover ratio is calculated as sales divided by inventory, which is $2 million / $0.4 million = 5.0.

Oliver Incorporated Has a Current Ratio = 1