E3–4 Bluestone Metals, Inc., is a metal fabrication firm that manufactures prefabricated metal parts for customers in a variety of industries. The firm’s motto is “If you need it, we can make it.” The CEO of Bluestone recently held a board meeting during which he extolled the virtues of the corporation. The company, he stated confidently, had the capability to build any product and could do so using a lean manufacturing model. The firm would soon be profitable, claimed the CEO, because the company used state-of-the-art technology to build a variety of products while keeping inventory levels low. As a business press reporter, you have calculated some ratios to analyze the financial health of the firm. Bluestone’s current ratios and quick ratios for the past 6 years are shown in the following table:

What do you think of the CEO’s claim that the firm is lean and soon to be profitable? (Hint: Is there a possible warning sign in the relationship between the two ratios?)

Transcribed Image Text:

2010 2011 2012 2013 2014 2015 Current ratio 1.2 1.4 1.3 1.6 1.8 2.2 Quick ratio 1.1 1.3 1.2 0.8 0.6 0.4