The following selected ratios are available for Pampered Pets Inc.: Instructions (a) Has the company's collection of its receivables improved or weakened over the last three years? (b) Is the company selling its inventory faster or slower than in past
(a) Has the company's collection of its receivables improved or weakened over the last three years?
(b) Is the company selling its inventory faster or slower than in past years?
(c) Overall, has the company's liquidity improved or weakened over the last three years? Explain.
2012 Current ratio Acid-test Receivables turnover Inventory turnover Operating cycle 2014 2.6:1 0.8:1 6.7 times 7.5 times 103 days 2013 1.4:1 0.6:1 7.4 times 8.7 times 91 days 0.7:1 8.2 times 9.9 times 81 days
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a The companys collection of its accounts receivable has deteriorate…View the full answer
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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