Explain to management the relevance of the current ratio

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Reference no: EM133529734

Case Study: You are the financial manager of a retail store that experiences very brisk business during the holidays - Easter and Christmas are the peak seasons for the store. However, during the off-peak season, the store experiences low business. This has resulted in a predicament around inventory management, as the inventory levels are either very high or very low. Management has approached you with the information below, and asked for your assistance:

Cash sales R90,000
Credit sales R300,000
Returns inwards R40,000
Opening stock R20,000
Closing stock R40,000
Gross profit ratio 30%

Tasks:

Help management calculate the inventory turnover ratio, and elaborate on the implications of having either a very high or very low inventory turnover ratio. Explain to management the relevance of the current ratio and quick ratio in managing the current assets and current liabilities of a retail organization.

Reference no: EM133529734

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