The new owners of Bluegrass Natural Foods, Inc., have hired you to help them diagnose and cure problems that the company has had in maintaining adequate liquidity. As a first step, you perform a liquidity analysis. You then do an analysis of the company’s short-term activity ratios. 3
Your calculations and appropriate industry norms are listed.
Current ratio bluegrass 4.5 industry norms 4.0
Quick ratio bluegrass 2 industry norms 3.1
Inventory turnover bluegrass 6 industry norms 10.4
Average collection period bluegrass 73 days industry norms 52 days
Average payment period bluegrass 31 days industry norms 40 days
a. What recommendations relative to the amount and the handling of inventory could you make
to the new owners?
b. What recommendations relative to the amount and the handling of accounts receivable could
you make to the new owners?
c. What recommendations relative to the amount and the handling of accounts payable could you
make to the new owners?
