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North Exploration Inc. and Eagle Minerals Inc. are similar firms that operate within the same industry. The

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North Exploration Inc. and Eagle Minerals Inc. are similar firms that operate within the same industry. The following information is available:

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The controller of your company has asked you to analyze the above two companies, so a decision can be made on whether you should invest in either. Prepare a paragraph on each of the below items that you can give to the controller in a memo.

a. Compare the current ratios and quick ratios and discuss.

b. Discuss the working capital for each and which company may have greater liquidity.

c. Compare the receivable and inventory turnovers.

d. How might obtaining industry standards affect the decision?

Transcribed Image Text:

North Exploration Inc. 2020 Eagle Minerals Inc. 2020 2019 2019 2018 2018 3.8 3.1 Current ratio Quick ratio.. Accounts receivable 3.9 3.2 4.2 3.3 5.3 4.9 4.8 4.6 4.0 3.7 35.2 39.2 26.4 40.5 34.2 25.2 23.0 turnover 26.0 22.6 Inventory turnover Working capital. 24.5 31.9 27.1 $75,000 $63,000 $57,000 $146,000 $118,000 $93,000

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a The current ratios and quick ratios show that Eagle Minerals is in a more liquid position than Nor...View the full answer


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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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