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Industry impact the ratio

a) Which firm would you expect to have the higher inventory turnover: an auto manufacturer or a department store? Why?

b) Which firm would you expect to have the higher assets-to-sales ratio: a computer software firm or an electric utility? Why?

c) Would you expect an industry with high inventory turnover to have a high profit margin on sales or a low profit margin on sales? Why?

d) You are involved in an industry which is becoming more and more competitive by the year. Which of the three major ratio groups (profitability, turnover-control, or leverage-liquidity) would probably be impacted first by this change? Why?

Solution Preview

a) Which firm would you expect to have the higher inventory turnover: an auto manufacturer or a department store? Why?

This is about how quickly they sell (turns or days in inventory)...generally firms with custom products and perishable stuff sell the fastest. Department stores and auto dealers don't have either. Department stores have small daily living purchases so they likely sell faster than cars which are bought only every several ...

Solution Summary

This discussion explains how industry characteristics and competitive strategies show up in the particular ratios. Each response is one or two sentences to get you started thinking about these. Students can then expand using their own words into a longer response.

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