The comparative financial statements of Sunset Pools, Inc., for 2009, 2008, and 2007 included the following selected data.
|
2009 |
2008 |
2007 |
|
|
(In millions) |
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|
Balance sheet: |
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|
Current assets: |
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|
Cash |
$ 86 |
$ 80 |
$ 60 |
|
Short term investments |
140 |
154 |
122 |
|
Receivables, net of allowance for doubtful accounts of $27, $21, and $15, respectively |
247 |
245 |
278 |
|
Inventories |
319 |
381 |
342 |
|
Prepaid expenses |
21 |
27 |
46 |
|
Total current assets |
813 |
887 |
848 |
|
Total current liabilities |
403 |
498 |
413 |
|
Income statement: |
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|
Net sales |
$2,898 |
$2,727 |
$2,206 |
Required
1. Compute these ratios for 2009 and 2008:
a. Current ratio b. Acid test ratio c. Days’ sales in receivables
2. Write a memo explaining to top management which ratio values improved from 2008 to 2009 and which ratio values deteriorated. State whether the overall trend is favorable or unfavorable and give the reason for your evaluation.