Barnes knows that SKI sells on the same credit terms as other firms in the industry. Use
Question:
Barnes knows that SKI sells on the same credit terms as other firms in the industry. Use the ratios presented in Table IC 15-1 to explain whether SKI?s customers pay more or less promptly than those of its competitors. If there are differences, does that suggest that SKI should tighten or loosen its credit policy? What four variables make up a firm?s credit policy, and in what direction should each be changed by SKI?
Table IC 15-1. Selected Ratios: SKI and Industry Average SKI Industry Current 1.75 2.25 Debt/assets 58.76% 50.00% Turnover of cash and securities 16.67 22.22 Days sales outstanding (365-day basis) Inventory turnover 45.63 32.00 4.82 7.00 Fixed assets turnover 11.35 12.00 Total assets turnover 2.08 3.00 Profit margin Return on equity (ROE) 2.07% 3.50% 10.45% 21.00%
Step by Step Answer:
SKIs DSO is 4563 days as compared with 32 days for the average firm in its industry This suggests that SKIs customers are paying less promptly than th...View the full answer
Fundamentals of Financial Management
ISBN: 978-0324664553
Concise 6th Edition
Authors: Eugene F. Brigham, Joel F. Houston
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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