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The following ratios are available for beverage competitors DAVIDsTEA Inc. and Starbucks Corporation for a recent year:

Question:

The following ratios are available for beverage competitors DAVIDsTEA Inc. and Starbucks Corporation for a recent year:

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Instructions

a. Which company is more liquid? Explain.

b. Which company is more solvent? Explain.

c. Which company is more profi table? Explain.

Taking It Further

The price-earnings ratio for Starbucks was 27.1 times. What does this ratio tell you about Starbucks?

Transcribed Image Text:

Starbucks Corporation DAVIDSTEA Inc. Liquidity Current ratio 4.2:1 1.3:1 Acid-test ratio 2.7:1 0.8:1 Receivables turnover 67.7 times 27.3 times Inventory turnover Operating cycle 4.2 times 6.6 times 93 days 69 days Solvency Debt to total assets Interest coverage 31% 62% N/A 47.8 times Profitability Gross profit margin Profit margin 47.9% 59.6% -12.7% 12.9% Asset turnover 1.4 times 1.6 times Return on assets -17.7% 20.1%

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a DavidsTeais more liquid with a much better current ratio and acidtest ratio than those of Star...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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