In: Finance
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.
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.