In analysing the financial statements of an entity, the following ratios were calculated: 2011 2012 Current ratio 2:1 1.3:1 Quick ratio 1:1 0.7:1 Receivables turnover (days) 30 45 Inventory turnover 3 times 4 times Profit margin 10% 7% Discuss any potential weaknesses that these ratios may reveal in the overall performance of the entity, and comment on possible causes for these results.

In analysing the financial statements of an entity, the following ratios were calculated: 2011 2012 Current ratio 2:1 1.3:1 Quick ratio 1:1 0.7:1 Receivables turnover (days) 30 45 Inventory turnover 3 times 4 times Profit margin 10% 7% Discuss any potential weaknesses that these ratios may reveal in the overall performance of the entity, and comment on possible causes for these results.

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter3: Evaluation Of Financial Performance

Section: Chapter Questions

Problem 10P

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