He electric entory to tile market e company p313

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International Financial Management
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Chapter 17 / Exercise 16
International Financial Management
Madura
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he electric entory to tile market e company
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International Financial Management
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Chapter 17 / Exercise 16
International Financial Management
Madura
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P3–13 Liquidity management Bauman Company’s total current assets, total current liabilities, and inventory for each of the past 4 years follow: Item 2012 2013 2014 Total current assets $16,950 $21,900 $22,500 $27,000 Total current liabilities 9,000 12,600 12,600 17,400 Inventory 6,000 6,900 6,900 7,200 a. Calculate the firm’s current and quick ratios for each year. Compare the resulting time series for these measures of liquidity. b. Comment on the firm’s liquidity over the 2012–2013 period. c. If you were told that Bauman Company’s inventory turnover for each year in the 2012–2015 period and the industry averages were as follows, would this information support or conflict with your evaluation in part b? Why? 2015 2015 6.4 11.0
Current ratio = Current assets/ Current liabilities Quick (acid-test) ratio = Current assets-Inventory/ Current liabilities A) 2012 2013 2014 2015 16950/9000 21900/12600 22500/12600 27000/17400 Current ratio 1.88 1.738 1.785 1.55 16950-6000/9000 21900-6900/12600 22500-6900/12600 27000-7200/17400 10950/9000 15000/12600 15600/12600 19800/17400 Quick ratio 1.217 1.19 1.238 1.138 Each year there is an increase in assets , liabilities and inventory. The current and quick ratio is dec the four years. This could be an indication of financial distress. B) The liquidity in the company has decreased from 2012 to 2013. The increase in assets against the incre liabilities has an impact on the decrease in ratio. This decrease could mean that the company is having troub short term obligations. This could indicate a cash flow problem in the company.
creasing in ease in ble paying
P3–17 Interpreting liquidity and activity ratios The new owners of Bluegrass Natural Foods, Inc., have hired you to help them diagnose and cure problems that the company has had in maintaining adequate liquidity. As a first step, you perform a liquidity analysis. You then do an analysis of the company’s short-term activity ratios. Your calculations and appropriate industry norms are listed. Ratio Bluegrass Industry norm Current ratio 4.5 4.0 Quick ratio 2.0 3.1 Inventory turnover 6.0 10.4 Average collection period 73 days 52 days Average payment period 31 days 40 days a. What recommendations relative to the amount and the handling of inventory could you make to the new owners? b. What recommendations relative to the amount and the handling of accounts receivable could you make to the new owners? c. What recommendations relative to the amount and the handling of accounts payable could you make to the new owners? d. What results, overall, would you hope your recommendations would achieve? Why might your recommendations not be effective?
A) The amount of inventory appears to be high due to the difference in quick ratio from Bluegrass and the industry norm. The inventory turnover is also less than the industry norm which means that the inventory does not turn over as fast as other business in the same genre. I would

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