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The following selected ratios are available for Pampered Pets Inc. for the most recent three years: Instructions

Question:

The following selected ratios are available for Pampered Pets Inc. for the most recent three years:

The following selected ratios are available for Pampered Pets Inc.

Instructions
(a) Is Pampered Pets' liquidity improving or worsening? Explain.
(b) Do changes in turnover ratios affect profitability? Explain.
(c) Do changes in turnover ratios affect cash flow? Explain.
(d) Identify any steps that the company may wish to take in order to improve its management of receivables and inventory.

Transcribed Image Text:

2012 2011 2010 2.6:1 2.4:1 Current ratio Receivables turnover Inventory turnover 8.2 times 9.9 times 7.4 times 8.7 times 6.7 times 7.5 times

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a At first glance it appears that Pampered Pets liquidity has improved over the last two years since the companys current ratio has increased from 211 to 261 The current ratio aggregates all current a...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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