Trusty Treats Enterprise have been involved in the candy business for 2 years. The financial ratios of the company for two years (2019 and 2020) and the industry averages for the year 2020 are presented in TABLE Q2. TABLE Q2: Financial ratios Ratio 2019 2020 Industry average (2020) Gross profit margin 60% 62% 76% Net profit margin 53% 52% 53% Return on assets 10% 9% 13% Inventory turnover 7 times 9 times 16 times Average collection period 60 days 55 days 45 days Current ratio 6.2:1 5.5: 1 7.9:1 Quick ratio 3.2 :1 2.9 : 1 5.4 :1 After a long discussion with the management, you have also identified the following information regarding candy businesses: i. Suppliers sometimes offer discounted materials without any prior notice for a very short time to push the sale of old stocks. Therefore, candy businesses must be quick to take advantage when the opportunity arises. ii. Most of the candies have a very long shelf life and may be stored for an average of 2 years. This sometimes allows the business to buy in bulk to get more discounts. ii. Credit customers are the ones who would likely to buy in large quantities. iv. The current state of the industry is highly competitive. The market leaders create competitive advantages by providing unique and trending services to the customers V. The use of social media influencers and local celebrities as product ambassadors are good strategies to attract customers. Based on the financial ratios and the information obtained, assess the current

Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
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2.
Trusty Treats Enterprise have been involved in the candy business for 2 years.
The financial ratios of the company for two years (2019 and 2020) and the
industry averages for the year 2020 are presented in TABLE Q2.
TABLE Q2: Financial ratios
Ratio
2019
2020
Industry average
(2020)
Gross profit margin
60%
62%
76%
Net profit margin
53%
52%
53%
Return on assets
10%
9%
13%
Inventory turnover
7 times
9 times
16 times
Average collection period
60 days
55 days
45 days
Current ratio
6.2 : 1
5.5: 1
7.9:1
Quick ratio
3.2 :1
2.9 : 1
5.4 :1
After a long discussion with the management, you have also identified the
following information regarding candy businesses:
i.
Suppliers sometimes offer discounted materials without any prior notice for
a very short time to push the sale of old stocks. Therefore, candy
businesses must be quick to take advantage when the opportunity arises.
ii.
Most of the candies have a very long shelf life and may be stored for an
average of 2 years. This sometimes allows the business to buy in bulk to
get more discounts.
ii.
Credit customers are the ones who would likely to buy in large quantities.
iv.
The current state of the industry is highly competitive. The market leaders
create competitive advantages by providing unique and trending services
to the customers
V.
The use of social media influencers and local celebrities as product
ambassadors are good strategies to attract customers.
Based on the financial ratios and the information obtained, assess the current
performance of the business.
Transcribed Image Text:2. Trusty Treats Enterprise have been involved in the candy business for 2 years. The financial ratios of the company for two years (2019 and 2020) and the industry averages for the year 2020 are presented in TABLE Q2. TABLE Q2: Financial ratios Ratio 2019 2020 Industry average (2020) Gross profit margin 60% 62% 76% Net profit margin 53% 52% 53% Return on assets 10% 9% 13% Inventory turnover 7 times 9 times 16 times Average collection period 60 days 55 days 45 days Current ratio 6.2 : 1 5.5: 1 7.9:1 Quick ratio 3.2 :1 2.9 : 1 5.4 :1 After a long discussion with the management, you have also identified the following information regarding candy businesses: i. Suppliers sometimes offer discounted materials without any prior notice for a very short time to push the sale of old stocks. Therefore, candy businesses must be quick to take advantage when the opportunity arises. ii. Most of the candies have a very long shelf life and may be stored for an average of 2 years. This sometimes allows the business to buy in bulk to get more discounts. ii. Credit customers are the ones who would likely to buy in large quantities. iv. The current state of the industry is highly competitive. The market leaders create competitive advantages by providing unique and trending services to the customers V. The use of social media influencers and local celebrities as product ambassadors are good strategies to attract customers. Based on the financial ratios and the information obtained, assess the current performance of the business.
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