The following ratios are available for Garcia Inc. Instructions (a) Is Garcias short-term liquidity improving or deteriorating
Question:
Instructions
(a) Is Garcias short-term liquidity improving or deteriorating in 2010? Be specific in your answer, referring to relevant ratios.
(b) Do changes in turnover ratios affect profitability? Explain.
(c) Identify any steps Garcia might have taken, or might wish to take, to improve its management of its receivables and inventoryturnover.
Current ratio Receivables turnover Inventory turnover 2010 1.3:1 12 times 11 times 2009 1.5:1 10 times 9 times
Step by Step Answer:
a At first glance it appears that Garcias liquidity had deteriorated over the past year since the companys current ratio has fallen from 151 to 131 Ho...View the full answer
Financial Accounting Tools for Business Decision Making
ISBN: 978-0470239803
5th Edition
Authors: Jerry J. Weygandt, Paul D. Kimmel, Donald E. Kieso
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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