The following ratios are available for toolmakers Best Tools, Inc. and Snappy Tools Incorporated, and their industry,
Question:
Instructions
(a) Which company is more liquid? Explain.
(b) Which company is more solvent? Explain.
(c) Which company is more profitable? Explain.
(d) Which company do investors favour? Is your answer consistent with your findings in parts (a) to (c)? Explain.
Best Tools Snappy Tools Industry Average Current ratio Receivables turnover Inventory turnover 6.7 times Debt to total assets Times interest earned 7.6 times Profitability Gross profit margin 0.8 times 0.7 times Return on assets Return on common shareholders' equity Price-earnings ratio Payout ratio Dividend yield 8.1 times 19.2 times 15.4 times
Step by Step Answer:
a Best Toolsappears to be more liquid Although Snappy Tools current ratio is higher than Best Tools ...View the full answer
Financial Accounting Tools for Business Decision Making
ISBN: 978-1118644942
6th Canadian edition
Authors: Paul D. Kimmel, Jerry J. Weygandt, Donald E. Kieso, Barbara Trenholm, Wayne Irvine
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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