Problem 1: Gulf and Northern total current assets, net working capital, and inventory for each of the past four years is as follows:
1999 2000 2001 2002
Total current asset 27,000 24,000 22,000 17,000
Net working capital 9,600 9,900 9,300 7,950
Inventory 7,200 6,900 6,900 6,000
a) Calculate the firm’s liquidity ratios for each year. Compare the resulting time series of each measure of liquidity (i.e. net working capital, current ratio, and quick ratio).
b) Comment on the firm’s liquidity over the period.
c) Do the following inventory turnover ratios for Gulf and Northern each year in the period and industry averages support or conflict with your evaluation in part b? why?
1999 2000 2001 2002
Gulf and Northern 6.4 7.0 6.8 6.3
Industry average 11.1 10.8 11.2 10.6