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Flashcards in Ratio Analysis Deck (11):

Inventory turnover increased from 8 to 12

larger percentage of sales in the last month leads a lower ending inventory,

thus increasing the inventory turnover ratio since the denominator of the fraction becomes smaller


Return on equity dropped from .8 to .5

retention of profits increases the shareholders' equity, thereby decreasing the ratio


Current Ratio dropped from 2 to 1.4

long-term debt becoming current


Decrease in Gross Margin from 28% to 24%

inability to pass on increases in costs will decrease the gross margin because cost of goods sold as a percentage of sales will increase


Decrease in Debt to Equity Ratio

Principal LT Debt payment or profit increases the total equity and thereby increases the denominator of the debt to equity ratio.


Decrease in quick Ratio

the increase in current debt increases the denominator of the quick ratio and thereby decreases the ratio.


Increase in Days sales in A/R

Larger % of sales happened in the last month than from prior year


Decrease in Operating Profit Margin

Operating expenses increased at a higher rate then sales revenue


Debt to equity decreased

Capital stock was issued


Gross profit percentage decreased

Manufacturing costs decreased less than sales decreased during the year


Days sales in A/R Increase

Fraudulent sales being recorded