Scenario 8-2 -In Scenario 8-2, After Analyzing the Inventory Turnover Ratio, You

question 59

Multiple Choice

Scenario 8-2. Denny's Diner is undergoing an analysis of its current financial statements. Denny is interested in seeing how his business compares to the industry. In order to make this comparison, Denny has developed the following ratios. He has come to you for an interpretation of his numbers.
$$\begin{array} { l l l l } &\text { Denny's Diner } & \text { Industry } & \\\text { Current Ratio }& 1.51 & 1.62 \\\text { Average Collection Period } & 2.50 & 5.00 \\\text { Inventory Turnover } & 80 & 75 \\\text { Debt Ratio } &43 \% & 52 \% \\\text { Net Profit Margin } & 10.2 & 8.3 \end{array}$$
-In Scenario 8-2, after analyzing the inventory turnover ratio, you determined that ______.

• A) Denny has a problem because this number is so high
• B) Denny is turning his inventory over too much
• C) Denny is not turning his inventory over enough to be profitable
• D) Denny is keeping his inventory current, which is positive due to the nature of his business

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Definitions:

Dorsum

The upper surface of an organ or body part, such as the back of the hand or the top side of the foot.

Cranial Nerve

One of the twelve nerves that originate in the brain and supply sensory, motor, or autonomic functions to the head, neck, and in some cases, viscera.

Auscultation

The act of listening to the internal sounds of the body, typically using a stethoscope, as part of a physical examination.

Auscultating

The act of listening to the sounds made by internal organs, especially the heart and lungs, typically using a stethoscope.