Interpreting liquidity and activity ratios. The new owners of Eluegrass Natural Foods, linc, have hirod you to holp them diagnose and cure problems thal the company has had in mantahing adequate liquidity. As a first step, you perform a liquidity analyais. You then do an analysis of the compary's short ferm activity ratios. Your caiculations and appropriabo industry norms are listed he a. What recommendations relative to the amount and the handing of inventory could you make to the new owners? b. What recommendations relative to the amount and the handing of accounts recoivable could you make to the ntwe cwners? c. What recommendations relative to the amount and the handing of accounts payable cevild you make to the new owners? d. What reaulits, overall, would you hope your recoenmendatians would achieve? Why might your recommendakens not be eflective? a. What rocommendations relative to the amount and the handing of inventery could you make to the new ownors? (Select all the answers that apply) A. Bluegrass's excess imventory relasive to the industry covid be due to slow sales relative to production or possely frem carrying obsolete inventory. c. Bluegrass appears to be holding excess inventory relative to the induitry D. Buegras appears to be turning over its inventory fauter than the industy, on average. b. What recommendations relative to the amount and the handing of accounts recevabie covid you meke to the new owners? (Select al the answers hat apply) A. An imponant Qubstion for imsemal management is whether the companys crest policy is too lenient or euttomes are just paying slunly-or pobentoly not paying at at B. The acoounts recoivable of Bluegrass appears to be high due to the low invertery turnever (5.9 versus the industry average of 103 ) D. The acoounts receivable of Blvegrass appears to be high due to the low average payment becos ca varws ne indusy average of 40 ) sources (Click on the icon located on the top-right corner of the data table below in order to copy its contents into a spreadsheet.) Interpreting liquidity and activity ratios. The new owners of Bluegrass Naturat Foods, inc, have hieed you to help tham diognose and cure peoblems that the company has had in maintaining adequate liquidity. As a first step, you perform a liquidity analysis. You then do an aralysis of the compan's short-term activity ratios. Your calculations and appropriate industry norms are listed her a. What recommendations relative to the amount and the handing of imventory could you moke to the new owners? b. What recommendations relative to the amount and the handing of accounts recelvable could you make to the nerw owners? c. What recomenendations relative to the amount and the handling of accounts payabio could you make to the now ownors? d. What results, overall, would you hope your recommendations would achieve? Why might your recomenendations not be offective? c. What recommendations relative to the amount and the handing of accounts poyablo could you make to the new omers? (Soloct all the answars that apply) A. By having the receivables collection period ovet four tmes as long as the payables payment poriod, fre fim is finanoing a significant ameurd of current assets, possibly from long-lerm sources. B. Since the firm is paying ts accounts payable in 29 days versus the industry nom of 40 days, Bluegrass's current ratio is higher (4.4) than the industry average (3.9) C. By having the receivables collection period over twice as long as the payables payment period, the firm is financing a signifcant amount of current assets, possbly from long-tem sourons d. What results, overall, would you hope your rocommendasions would achieve? (Select all the answers that apply) A. If the inventory is obsolete, then it must be written off to gain the income tax benefit B. Slowing down the payment of accounts payable would also reduce finaning costs, but as aheuld be done in a way that doesnit hurt the companys credt. C. The firm must puth to try to get their custamers to pay earser. Payment sming can be increased by shortening oreds terms or providing a dscount for earler payment D. The desire is that management will be able to curtal the level of invontory ether by reducing producten ce encouraging addeonal sales through a stronger sabs pregram or discounts. Why might your recommendations not be efective? Decde f the following statoment is trus or false: Carrying out these recommendations may be dmoult because of the potental loss of customers due to sricter credit berms the frm asso would not want to increase their costa of purchases by delaying payment beyond any dncoumt period given by ther supplen. (Select from the drop-down monu)
