As Beacon Company controller, you are responsible for informing the board of directors about its financial activities.
Question:
As Beacon Company controller, you are responsible for informing the board of directors about its financial activities. At the board meeting, you present the following information.
After the meeting, the company’s CEO holds a press conference with analysts in which she mentions the following ratios.
Required
1. Why do you think the CEO decided to report 4 ratios instead of the 11 prepared?
2. Comment on the possible consequences of the CEO’s reporting of the ratios selected.
2021 2020 2019 Sales trend percent 147.0% 135.0% 100.0% Selling expenses to sales... 10.1% 14.0% 15.6% Sales to plant assets ratio 3.8 to 1 3.6 to 1 3.3 to 1 Current ratio .. 2.9 to 1 2.7 to 1 2.4 to 1 Acid-test ratio . 1.1 to 1 1.4 to 1 1.5 to 1 Inventory turnover 7.8 times 9.0 times 10.2 times Accounts receivable turnover 7.0 times 7.7 times 8.5 times .... Total asset turnover . 2.9 times 2.9 times 3.3 times Return on total assets.. 10.4% 11.0% 13.2% Return on equity.... 10.7% 11.5% 14.1% Profit margin ratio.. 3.6% 3.8% 4.0%
Step by Step Answer:
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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