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Assignment Activity - Financial Statement Analysis

The inventory turnover ratio is more important for analyzing a grocery store chain than an insurance company because grocery stores need to efficiently manage inventory levels and replenish stock frequently. The turnover ratio indicates how many times raw materials are used and replaced during a period, and it measures the average number of days inventory is held. For insurance companies, inventory levels are less relevant than for retailers that sell tangible goods. If the accounts receivable turnover ratio is decreasing, the average collection period is increasing. Accounts receivable turnover and average collection period are inversely related, so a lower turnover ratio means it is taking longer on average to collect on amounts owed by customers.

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Desiree Galleto
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44 views

Assignment Activity - Financial Statement Analysis

The inventory turnover ratio is more important for analyzing a grocery store chain than an insurance company because grocery stores need to efficiently manage inventory levels and replenish stock frequently. The turnover ratio indicates how many times raw materials are used and replaced during a period, and it measures the average number of days inventory is held. For insurance companies, inventory levels are less relevant than for retailers that sell tangible goods. If the accounts receivable turnover ratio is decreasing, the average collection period is increasing. Accounts receivable turnover and average collection period are inversely related, so a lower turnover ratio means it is taking longer on average to collect on amounts owed by customers.

Uploaded by

Desiree Galleto
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as PDF, TXT or read online on Scribd
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GALLETO, Desiree A.

BSA-2

1. Why would the inventory turnover ratio be more important for someone analyzing
a grocery store chain than an insurance company?

Inventory turnover includes merchandise turnover, finished goods


inventory,
Goods in process turnover, raw materials turnover, and days supply in inventory.
There are numerous benefits to performing an inventory turnover. You will have
more control over your inventory, a better decision-making process, and a more
efficient way to determine whether or not to order a product.

Turnover ratio is more important for someone analyzing a grocery store


chain than an insurance company because it measures efficiency of the firm in
managing, it indicates the number of times raw materials inventory was used and
replenished during the period, and it measures average number of days to sell or
consume the average inventory.

The methodology will provide powerful insights into your products' life
cycles and market performance. It is thus easier to plan strategies that are more
suited to the context of each company.

2. If the accounts receivable turnover ratio is decreasing, what will be happening to


the average collection period?

Account receivable means the money due to the organization for the
goods and services sold but money not received yet. It is shown as a current
asset in the company's balance sheet. Account receivable turnover ratio is
inversely related to the average collection period. So, a decrease in the accounts
receivable turnover ratio increases the average collection period.

3. Solve the problem.


Shannon Corporation
Statement of Financial Position as of December 31, 2024

Assets
Cash 6,000
Accounts receivable 75,000
Inventory 50,000
Total current assets 131,000
Fixed assets 169,000
Total assets 300,000

Liabilities and owner’s equity


Current debt 65,500
Long-term debt 69,500
Total debt 135,000
Net worth 165,000

Total liabilities and owner’s equity 300,000

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