Question

Suppose you manage a company, which presents the following financial indicators: Current Ratio: 2 Average Collection...

Suppose you manage a company, which presents the following financial indicators:

Current Ratio: 2

Average Collection Period: 76.3 días

Inventory Turnover: 6.7

Operating Income Return on Investment: 13.2%

Debt Ratio: 32%

The competition has the following results:

Current Ratio: 2

Average Collection Period: 35 days

Inventory Turnover: 6.7

Operating Income Return on Investment:10%

Debt Ratio: 60%

How is the financial situation of your company? Please argue your answer.

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Answer #1

the current ratio is reflecting a better position for the company because it is reflecting a higher liquidity for the company because the current ratio is high.

average collection period of the company needs to be reduced in order to have a flexibility in its cash received.

Inventory turnover of the companyis considered good because the inventory is almost turnover in 60 days.

Operating income return on investment is reflecting a good return over all but it needs to be improved because it can be in higher two digits

Debt ratio of the company's overall manageable and better than the competitor as well so the company will not be having solvency risk.

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