Special Friends had the following ratios for the last two years. The industry av

Question

Special Friends had the following ratios for the last two years. The industry average is for 2008.



2008 2007 Industry Average
Current Ratio 2.25:1 2.00:1 2.00:1

Average collection period 60 days 45 days 45 days

Days in Inventory 50 days 55 days 60 days

Gross profit ratio 55% 60% 55%

Profit margin ratio 20% 10% 15%

Debt to total assets ratio 70% 45% 55%


1. Has Special Friends' current ratio improved or deteriorated?
2. Explain what the current ratios measures?
3. Has Special Friends' average collection period improved or deteriorated?
4. Has Special Friends' days in inventory improved or deteriorated?
5. Evaluate Special Friends' liquidity.
6. Has Special Friends' gross profit ratio improved or deteriorated?
7. Has Special Friends' profit margin ratio improved or deteriorated?
8. Discuss the problem with Special Friends' profitability and what they have to do to correct it.
9. Has Special Friends' debt to total assets ratio improved or deteriorated?
10. Evaluate Special Friends' solvency.

Explanation / Answer

Special Friends' current ratio improved The ratio is mainly used to give an idea of the company's ability to pay back its short-term liabilities (debt and payables) with its short-term assets (cash, inventory, receivables). The higher the current ratio, the more capable the company is of paying its obligations. Has Special Friends' days in inventory improved Special Friends' days in inventory deteriorated Special Friends' debt to total assets ratio improved Special Friends' profit margin ratio improved

Related Questions

Navigate

• Browse (All)
• Browse S
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.