LUI UUUULI UCCUulo. 2016 asubs E8-15 The following ratios are available for Ming

Question

LUI UUUULI UCCUulo. 2016 asubs E8-15 The following ratios are available for Ming Inc. suwens oor word no immoo ) Evaluate liquidity. stus daripad urocos Isto (LO 4), AM 6 gigas ovisi etnuo os odh sn 2017 Current ratio Cold 1.3:1 ainuoos 1.5:1 obogsinsong Accounts receivable turnover 12 times 10 times osledi n Inventory turnover sogon arrogram 11 times los 9 timessa AS- Instructions (a) Is Ming's short-term liquidity improving or deteriorating in 2017? Be specific in your answer, referring to relevant ratios. (b) Do changes in turnover ratios affect profitability? Explain. (c) Identify any steps Ming might have taken, or might wish to take, to improve its man- agement of its accounts receivable and inventory turnovers. so

Explanation / Answer

Answer:

(a) Current Ratio measures whether th company has ability to pay its Current Liabilities from its Current Assets. Generally Current Ratio of 2 to 1 is acceptable.

(b) Yes turnover ratio's plays an important role in company's profitability.

(c) Ming Inc might have reduced the credit days which it generally gives on credit sales to improve its Accounts Receivale Turnover ratio.

-Moreover, it might have also analysed the inventory and keeping it in mind it had not stored more slow moving items in inventory so as to improve Inventory Turnover Ratio.

->However, it should emphasise on doing more credit sales which will improve company's profitability and as its accounts receivable ratio is good.

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