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Hollywood Manufacturing Company Current Ratio

520 Words3 Pages

In 2014, the Current Ratio is decreasing from 1.66 to 1.5. This shows the company cannot easily make current debt payment.
The current ratio helps investors and creditors appreciate the liquidity of a company and how simply that company will be able to pay off its current liabilities. This ratio expresses a firm's current debt in terms of current assets. If a company has to vend of fixed assets to pay for its current liabilities, this generally means the company isn't generating sufficient from operations to carry all activities. Further we can say the company is trailing money. At times this is an outcome of low collections of accounts receivable. The current ratio also throws light on the overall debt load of the company. If a company is subjective down with a current debt, its cash flow will suffer.

The Inventory turnover is .6 in both the years that implies that it would approximately take 6 years to sell the entire …show more content…

The first component is stock purchasing. If more amounts of inventory are purchased during one year, the company will have to sell more amounts of inventory to get better its turnover. If the company can't sell these amounts of inventory, it will earn storage costs and other investment costs. This shows the company does not spend more by buying too much inventory and wastes resources by storing non-salable inventory. It also shows that the company can efficiently sell the inventory it buys. This measurement also shows investors how liquid a company's inventory is. Think about it. Inventory is one of the biggest assets a retailer reports on its balance sheet. If this inventory can't be sold, it is worthless to the company. This measurement shows how easily a company can turn its inventory into cash. Creditors are mainly interested in this because inventory is often put up as guarantee for loans. Banks want to know that this inventory will be effortless to

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