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5 (1)
1. There is no difference between the two companies in their income statements. Both companies have the same amount of revenues and expenses. However, the two companies are different in their balance sheets. Assuming that all other things are equal, the company that sells product evenly has a higher cash and a lower trade receivables balance at the quarter-end than the company which ships all products in the last two weeks. The following accounting ratios can be used to differentiate the two companies:
Trade Receivables Turnover = Trade Receivables
The company with even sales will have a higher receivable turnover ratio.
Days’ Receivables = Average Sales per Day
The company with even sales will show lower days’ receivable.
Cash + Marketable Securities
Cash Ratio = Current Liabilities
The company with even sales will have a higher cash ratio.
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