Furniture Factory, Inc., manages their inventory more efficiently than the industry. This is most obvious by comparing the inventory turnover ratio to the industry. The inventory turnover ratio is computed by dividing cost of goods sold by the average inventory. Therefore, the higher the turnover ratio the more efficient the company is in managing inventory. Comparing the current asset and quick ratio also reflects a low level of inventory for the company. The quick ratio is right in line with industry average, while the current ratio is much higher for the industry. However, this is to be expected if a company is very efficient in managing their inventory. The company does not appear to have a serious liquidity or leverage problem. While the total amount of debt to equity is increasing, the interest coverage ratio is improving and provides adequate cushion for debt obligations. |
