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Explain what the ratios measure or indicate

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Question - Shelzo Ltd, a manufacturer of construction equipment is considering the purchase of one of its suppliers, Raritron Enterprises. The purchase has been given preliminary approval by Shelzo's Board of Directors, and several discussions have taken place between the management of both companies. Raritron has submitted financial data for the past several years. Shelzo's controller has analysed Raritron's financial statements and prepared the following ratio analysis comparing Raritron's performance with the industry averages. Below is an extract of 3 ratios calculated.

Raritron 21X3 21X2 21X1

Industry Average 21X3 Inventory turnover 7.07 7.71 8.7 9.4

Accounts receivable turnover 6.98 7.25 7.83 7.78

Current ratio 1.65 1.95 1.70 2.30

Required -

a. Explain what the above ratios measure or indicate (do not explain how they are calculated)

b. What do these ratios indicate about Raritron Industries in comparison to the industry average.

Reference no: EM132562712

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