Inventory Turnover Ratio

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Quick Ratio measures the ability of a company to fulfill its current liabilities with its most liquid assets. Overall, a rising quick ratio indicates that the company has enough cash to pay back its current liabilities. From the calculation, a decrease of Sleep Country’s quick ratios is prevalent between the 2014 to 2015 fiscal years. In 2014, the ratio reveals that Sleep Country had approximately $1.06 in quick assets for every $1 in current liabilities. However, in 2015 the quick ratio decreased to 0.40. This indicates that Sleep Country is not able to pay back its short-term liabilities. According to the annual report, the sale of the Sleep America business may explain the significant drop in current assets from $90,754 in 2014 to $58,739 …show more content…
In the 2014 fiscal year, Sleep Country’s inventory turnover ratio was 11.10 times, while in the 2015 fiscal year it was 11.27 times. Achieving a higher inventory turnover means that Sleep Country is able to improve inventory management and foster sales. The higher inventory ratio is complemented with an increase in sales, as the cost of goods sold increased approximately 12.54% from 2014 to the 2015 fiscal year. Sleep Country reported that direct expenses from inventory increased from 44.9% to 46.1% as a result of increased provisions of warranty. In addition, write-offs of inventory that have become damaged increased from $760 in 2014 to $874 in the 2015 fiscal year. Thus, with an increase in direct expenses from inventory from $178,932 in 2014 to $205,324 in 2015 and write-offs of inventory, the total cost of goods sold in the 2015 fiscal year increased (Annual Reports 2015, note 7). With a higher value in cost of goods sold, the inventory turnover ratio is slightly higher. Hence, Sleep Country is more efficient in turning over inventory in 2015 compared to the previous fiscal …show more content…
This decrease in EPS is considered a negative signal since a net loss decreases the value of the firm. With this in mind, the decrease in EPS lowers the value of the stock. Although this may be true, the income before finance, interest, and other income expenses and income taxes is positive. Sleep Country had spent a large amount of money in finance related activities, which resulted in a net loss for the 2015 fiscal year. Finance related expenses include net transaction costs associated with the replaced revolving and term facilities ($1205) and interest on the term facility. According to this information, long-term debts have generated large amount of expenses. Thus, it is expected that Sleep Country requires additional time to recover and achieve its obligations under the new credit facilities. However, it would not be profitable to invest in this company at this point in time (Annual Reports 2015, note

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