Use the following industry-average ratios to construct a pro forma balance sheet for Karens Beauty Products, Inc.
Question:
Use the following industry-average ratios to construct a pro forma balance sheet for Karen’s Beauty Products, Inc.
Total asset turnover 2.0 times Average collection period (assume 365-day year) 30 days Fixed asset turnover 5 times Inventory turnover (based on cost of goods sold) 4 times Current ratio 2.5 times Sales (all on credit) $12 million Cost of goods sold 80% of sales Debt ratio 40% Current liabilities Cash Long-term debt Accounts receivable Common stock plus Net fixed assets Retained earnings %24
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Given information Total asset turnover Average collection period Fixed asset turnover Inventory tu...View the full answer
Foundations Of Finance
ISBN: 9780135160619
10th Edition
Authors: Arthur J. Keown, John H. Martin, J. William Petty
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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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