The ABC Inc. operates several stores selling pine furniture. Selected financial ratios are as follows: Current ratio Quick ratio Receivables turnover Inventory turnover Debt to equity ratio Return on assets Gross margin Profit margin Return on equity 2024 2.35 0.96 10.43 5.61 0.88 5.5% 8.7% 3.8% 14.2% 2023 2.30 0.91 9.61 5.37 0.77 6.0% 12.6% 4.2% 13.0% 2022 2.25 0.88 8.69 5.07 0.58 9.8% 18.7% 6.9% 12.0% In 2022, ABC Inc decided to change its strategy from selling high-end furniture to selling lower-cost items in order to be more competitive and began importing low-cost furniture. In order to do this the company invested in new warehouse facilities and its total assets grew $2.5 million in 2022 to $4.5 million in 2023 and finally to $5 million in 2024. Required a) Briefly discuss what these financial ratios indicate about how ABC Inc was affected by its decision to change its strategy in 2022.

The ABC Inc. operates several stores selling pine furniture. Selected financial ratios are as follows: Current ratio Quick ratio Receivables turnover Inventory turnover Debt to equity ratio Return on assets Gross margin Profit margin Return on equity 2024 2.35 0.96 10.43 5.61 0.88 5.5% 8.7% 3.8% 14.2% 2023 2.30 0.91 9.61 5.37 0.77 6.0% 12.6% 4.2% 13.0% 2022 2.25 0.88 8.69 5.07 0.58 9.8% 18.7% 6.9% 12.0% In 2022, ABC Inc decided to change its strategy from selling high-end furniture to selling lower-cost items in order to be more competitive and began importing low-cost furniture. In order to do this the company invested in new warehouse facilities and its total assets grew $2.5 million in 2022 to $4.5 million in 2023 and finally to $5 million in 2024. Required a) Briefly discuss what these financial ratios indicate about how ABC Inc was affected by its decision to change its strategy in 2022.

Managerial Accounting

15th Edition

ISBN:9781337912020

Author:Carl Warren, Ph.d. Cma William B. Tayler

Publisher:Carl Warren, Ph.d. Cma William B. Tayler

Chapter16: Financial Statement Analysis

Section: Chapter Questions

Problem 4PB

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