Scenario 8-2 -In Scenario 8-2, After Analyzing the Current Ratio, You Determined

question 3

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 current ratio, you determined that ______.

• A) Denny has a problem
• B) Denny can cover his current liabilities 1.51 times with his current assets
• C) Denny is too far off of the industry average in this case
• D) Denny has inventory that cannot easily be converted into cash

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Definitions:

Economic Development Institution

Organizations, either governmental or non-governmental, focused on promoting economic development and growth by providing support, resources, and policies to stimulate economic activities.

Output Per Capita

A measure of productivity per person, typically calculated as total output divided by the population size.

Enrolment Rate

The percentage of individuals who are registered or enrolled in an educational institution relative to the eligible population.

Industrial Countries

Nations with highly developed industries and infrastructure, often characterized by significant levels of manufacturing, services, and technology sectors.