Barnes plans to use the ratios in Table IC 15-1 as the starting point for discussions with
Question:
Barnes plans to use the ratios in Table IC 15-1 as the starting point for discussions with SKI?s operating executives. He wants everyone to think about the pros and cons of changing each type of current asset and the way changes would interact to affect profits and EVA. Based on the data in Table IC 15-1, does SKI seem to be following a relaxed, moderate, or restricted working capital policy?
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%
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A company with a relaxed working capital policy would carry relatively large ...View the full answer
Fundamentals of Financial Management
ISBN: 978-0324664553
Concise 6th Edition
Authors: Eugene F. Brigham, Joel F. Houston
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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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