Basil Company's total current assets, total current liabilities, and inventory for each of the past 4 years
Question:
a. Calculate the firm's current and quick ratios for each year. Compare the resulting time series for these measures of liquidity.
b. Comment on the firm's liquidity over the 2009-2012 period.
c. If you were told that Basil Company's inventory turnover for each year in the 2009-2012 period and the industry averages were as follows, would this information support or conflict with your evaluation in part b? Why?
Item 2009 2010 2011 2012 Total current assets US$16,950 US$21,900 USS22,500 US$27,000 Total current liabilities Inventory 9,000 6,000 12,600 6,900 12,600 6,900 17,400 7,200 Inventory turnover 2009 2010 2011 2012 Basil Company Industry average 10.6 11.2 10.811.0 6.3 6.8 7.0 6.4
Step by Step Answer:
a 2009 2010 2011 2012 Current ratio 188 174 179 155 Quick ratio 122 119 124 114 Net w...View the full answer
Principles of Managerial Finance
ISBN: 978-1408271582
Arab World Edition
Authors: Lawrence J. Gitman, Chad J. Zutter, Wajeeh Elali, Amer Al Roubaix
Related Video
Inventory turnover is a key metric that helps businesses evaluate the efficiency of their operations. A high turnover ratio is generally considered positive, indicating that the company is effectively selling its inventory and making efficient use of its resources. On the other hand, a low turnover ratio may indicate issues such as overstocking or slow sales and may require further examination to identify and address the underlying causes. Businesses use this ratio to make decisions about inventory levels, production schedules, and pricing strategies. It also helps businesses to identify areas where they may need to make improvements, such as reducing lead times for production or optimizing sales and marketing efforts. Additionally, inventory turnover is used by investors and analysts as a key performance indicator to evaluate the financial health and growth potential of a company.
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