How can I respond to this discussion? Days sales = 365/ Inventory Turnover Industry: 365/2.69= 135.69,...

How can I respond to this discussion?

Days sales = 365/ Inventory Turnover

Industry: 365/2.69= 135.69, so days sales for industry is 135.69.

Company: 365/15.82= 23.07, so days sales for company is 23.07.

Taking into consideration that a company with a quick ratio greater 1, has a liquidity that allows for meeting short-term obligations. This company has a quick ratio of .91. The reasons for this could be a number of things, from delayed collections of accounts receivable to decreasing sales (Wohlner). The industry has a quick ratio of .72, so the company does have a higher quick ratio. I am not sure if that means that they are doing well, when the industry is not, or the opposite. I think that it means the former, but would definitely take any clarification offered.

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Expert Solution

The ideal quick ratio is 1 but this varies from indutry to industry
the industry standard for the quick ratio is 0.72. however the company has a better quick ratio of 0.91. this shows a better capacity to payoff the short term debts than the industry benchmark. We shoul always compare industry banchmarks when we analyze a ratio.
Quick ratio = Quick Assets / Current liabilities
Quick assets excludes inventory and prepaid expenses as they are less liquid when compared to oyher current assets.
Inventory turnover is the number of times the inventory moves in a year. A company with inventory turnover 12 means the inventory completes 12 cycles of in and out stock in a year.
Inventory turnover in days is the further analysis used to understand the number of days it takes to completer one inventory cycle.
The industry has the inventory turnover in days of 135 days whereas the company has 23 days. therefore, the company is in a better position of giving off its inventory more quickly when compared to the industry benchmark.

jeff jeffy answered 8 months ago

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