Class 7 - final.pdf - Starbucks asset turnover ratio 9-2009...

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Starbucks asset turnover ratio 9-2009 1.74 9-2010 1.79 9-2011 1.70 Inventory turnover 9-2009 6.37 9-2010 7.38 9-2011 6.56 GMCR asset turnover ratio 9-2009 1.37 9-2010 1.24 9-2011 1.16 Inventory turnover 9-2009 4.97 9-2010 4.66 9-2011 3.74 This measurement also shows investors how liquid a company's inventory is. Think about it. Inventory is one of the biggest assets a retailer reports on its balance sheet . If this inventory can't be sold, it is worthless to the company. This measurement shows how easily a company can turn its inventory into cash. Working capital 2009 - $413,751,000 C. Assets 537,801,000 C. Liabilities 124,050,000 2010 - $257,214,000 495,269,000 238,055,000 2011 - $660,153,000 1,131,527,000 471,374,000 Current ratios 2009 - 4.34 2010 - 2.08 2011 - 2.40 1. Determine the working capital and current ratios for 2009, 2010, and 2011 for the Green Mountain Coffee Roasters Inc. based on the information contained in the consolidated balance sheets in Appendix A. Did Green Mountain’s working capital and current ratio increase or decrease from 2009 to 2011? 1. What conclusions can you draw concerning the relative liquidity and efficiency of this corporation? How do Green Mountain’s results compare with those of other
companies in the same industry? Would you invest in this company? Defend your position on these issues in a one- or two-page typed response. Do not forget to include your calculations and comparisons in an easy to read chart format. Working capital and current ratio are barometers for determining the financial health of a company. Working capital is the company's currents assets minus its current liabilities. The current ratio is the current assets divided by the current liabilities. These are both measurements of the company's ability to pay its current liabilities. Positive working capital and a high current ratio are good indicators that the company is able to pay its current liabilities. Due to different types of expenses and different inventory turnover rates, what is considered a good working capital and current ratio varies between industries and to therefore comparisons of these should be made between companies within the same industry, (Working Capital, n.d.). Green Mountain Coffee Roasters, Inc’s working capital and current ratio between 2009 and 2011 GMCR 2009 2010 2011 Current Assets $537,801M $495,269M $1,131,527M Current Liabilities $124,050M $238,055M $471,374M Working Capital $413,751M $257,214M $660,153M Current Ratio 4.34 2.08 2.4 (2009 statistics GMCD Strong Growth n.d., 2010-2011 Horngren’s Account, 2014) Liquidity is measured by how quickly assets can be turned into cash: cash and accounts receivable being more liquid, supplies and plant assets being less liquid (Horngren’s Accounting, 2014). GMCR has positive working capital and current ratios during these accounting periods so it appears they were liquid at the time, however, the drop in working capital between 2009 and 2010 is concerning, as it could be a sign of poor management or a drop in sales. By 2011, the company was able to recover and show significant growth ending up with an increase in working capital of over $200,000 million between 2009 and 2011. The company’s current ratio,

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