Question

You are a Supplier: A retailer requests to purchase supplies on credit from your company. You have no prior experience with this retailer. The retailer’s current ratio is 2.1, its acid-test ratio is 0.5, and inventory makes up most of its current assets. Do you extend credit?

You are the Financial Officer: Your company has a 36% gross margin ratio and a 17% net profit margin ratio. Industry averages are 44% for gross margin and 16% for net profit margin. Do these comparative results concern you?

Answer 1

Case I	Supplier Point of View
	The Retailer has a strong current ratio of 2.1, however its Quick ratio is 0.50 which in itself shows that the Current Asset is mostly made of Inventory
	As Current ratio = current asset/current liability and Qucik ratio = (current assets-Inventory)/current liability.
	This excessive inventory shows that the retailer is unable to sell its product in a consistent manner and also its liquidity is not upto mark beacause of this.
	So as a supplier I will hesitate to extend credit as there may be problem in payment.
Case II	Financial Point of View
	The comparison between the profitability ratios of the industry and company shows that the company is not upto the mark set by the Industry
	Even though the difference is not much still it might affect the cmpany's share price and its market capitalization.
	So as s Financial officer this small chage also concerns me as it might overall affect the company.