Question

Short answers 2-3 sentences.

what assets make up current assets and which are the least liquid and why?

when a firm has a “low asset turnover ratio”? (hint: focus on the fact that the firm may not be managing his assets well or the level of assets may be too high for the volume of sales. Maybe the firm has obsolete items…..better management is needed).

Explain the purpose of trend analysis and why do we use industry comparison?

Answer 1

Answer 1:- Current assets are comprised of cash, cash equivalents, accounts receivable, inventory, marketable securities, pre-paid liabilities, and other liquid assets. As we know liquidity of an asset means its ability to get converted into cash, Cash in hand is considered as the most liquid current asset  since it is cash itself.

Answer 2:- A firm is likely to have a low Asset turnover ratio when it is not able to  efficiently use its assets to generate sales.As assets turnover ratio tell the amount of sales generated by the firm  per dollar of Assets employed by the firm, If a firm has large amount obsolete items of Asset which are not used in any way for the purpose of sales generation or the assets are not managed properly then the Asset turnover ratio is bound to come down and become unfavourable.

Answer 3:- The purpose of trend analysis is to spot a prevalent trend in a market  and/or to determine how that particular trend developed or would develop over a period of time. It attempts to predict the future stock price movements in a secondary market based on the trend data of a time period. We use Industry analysis to understand the strength or weakness of a particular firm in comparison with other related firm in the industry or with the average pf the industry.

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