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Inventory turnover ratio gives us the measure of the number of times the company’s inventory is sold and replaced for a given a period. The higher the ratio, the better it is. A low ratio indicates that the sales are poor and there is excess inventory. Tylee’s ratio has decreased from 4.5 to 2.1 Accounts receivable turnover ratio measures the firm’s effectiveness in extending credit and collecting debt. A high ratio indicates that the firm is efficient in collecting its accounts receivables. A low ratio is an indication to the company to reassess its credit policy. Tylee’s ratio has decreased from 10 to 6.1 Holly is concerned about the two ratios of Tylee Industries Inc. as both are on decline indicating stagnant inventory and uncollected sales revenue which is not a good sign. Also, the response of Doug is not satisfactory. He admits that there is new technology in the market already and still assumes all of his inventory can be converted into sales. Doug also says that the sales are increased; however he has no relevant explanation for the fall in the accounts receivable turnover ratio. Also, if sales have increased like Doug said, inventory turnover ratio can’t be expected to decline! Holly’s Action Holly needs to go through the sales and accounts receivables in detail to see what caused the same. He can obtain some third party help or confirmations from the third party regarding the same. He has to check whether there is any window dressing or fraud that took place as the sales are shown at an increased percentage by 35%, yet a decreasing accounts receivable turnover ratio. Even after all this he cannot find a proper answer for the questions raised, he can request for a letter from the management or those concerned with governance. Response to Doug’s comment: Doug in his last comment states the company has a good current ratio. Current ratio is current assets

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