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Montero Ltd$.$ is required by its primary lender to maintain a current ratio of $2$:$1$ in order to comply with its loan covenants. In the past, Montero has had difficulty in achieving this target, but management is confident that in $2025$ they will have met the bank$$s requirement. Montero$$s accountant provides you with the following information taken from their most recent three years of financial statements.

$202520242023$

Current assets

Cash $$26,505$ $$28,500$ $$30,000$

Accounts receivable $83,50468,44660,040$

Inventory $189,266146,718125,400$

$$299,275$ $$243,664$ $$215,440$

Current liabilities

Accounts payable $$91,000$ $$89,000$ $$86,000$

Salaries payable $4,9005,2005,000$

Current portion of long$-$term debt $24,00036,00036,000$

$$119,900$ $$130,200$ $$127,000$

Other information:

Credit sales in the year $$782,775$ $$745,500$ $$710,000$

Cost of goods sold $469,665447,300426,000$

Required:

a$)$ Calculate Montero$$s current ratio for each of the three years in order to demonstrate that management$$s expectation has been met $($round to one decimal place$).$

b$)$ Calculate Montero$$s accounts receivable turnover for $2025$ and $2024($round to one decimal place$).$

c$)$ Calculate Montero$$s inventory turnover for $2025$ and $2024($round to one decimal place$).$

d$)$ Using the outcome of b$)$ and c$),$ evaluate whether the achievement of the current ratio targets indicates an improved liquidity or not. Identify any other change that has contributed to meeting this goal and evaluate the impact.

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