The Current Ratio Evaluates Petsin Inc.’s

The Current Ratio Evaluates Petsin Inc.’s 
Part A
The current ratio evaluates Petsin Inc.’s ability to meet its short-term obligations, including short-term loans and payable accounts, thus depicting the proportion of the firm’s current assets to current liabilities. The magnitude of the current ratio has been increasing from 2017 to 2019, indicating that the company has high liquidity, thus greater capacity to achieve its short-term commitments as they mature. In this context, Petsin Inc.’s Chief Executive Officer (CEO) claims that 2019 was a good year for the company to meet its short-term financial obligations as they fall due raises questions. It is not completely correct because the current ratio has only slightly improved over the three years. In this context, it can be noted that 2019 was not an outstanding year for the company because the ratio remained above one from 2017 to 2019, reiterating that the company did not face any liquidity deficit, as well as the fixed assets component was funded using short-term debt. Although a deficit in liquidity could result in a deterioration in the company’s energy, it can also affect its profitability. A current ratio of above 1 indicates that Petsin Inc. has more liquid assets compared to its current liabilities (Durrah et al., 2016, p.436).
According to Durrah et al. (2016), the quick ratio encompasses the most liquid assets (e.g., cash) to the current liabilities (p.436). Petsin Inc.’s quick ratio has remained significantly stable from 2017 to 2019, indicating that although the CEO’s argument is correct to a certain extent, it can be termed as hype to convince shareholders mainly because the quick ratio did not improve that much in 2019. The quick ratio for the company was 1.029, 1.03, and 1.028 in 2017, 2018, and 2019 respectively. The increase in quick ratio expresses improved liquidity and working capital management strategies for Petsin Inc. It should be noted that the quick ratio does not include prepaid inventory and expenses from current assets due to the challenge of converting them into cash (Durrah et al., 2016, p.436). In addition, the 2019 quick ratio is also lower than the industry average for the same year, indicating that 2019 was not that impressive. Based on working capital management concepts, it can be inferred that the CEO is correct to some degree (Arnaldi et al., 2021, p.1953). Working capital is the residue of the current assets over the current liabilities. In this vein, Petsin Inc. has adequately invested in short-term investments (cash and cash equivalents, marketable or short-term securities, accounts receivables, and inventories) (Ibrahim et al., 2021, p.1). Therefore, Petsin Inc.’s lifeblood is healthy because current assets are more than the current liabilities.
Part B
For purposes of establishing Petsin Inc.’s firm’s asset management and based on the information provided, days sales in receivables, total asset turnover, and inventory turnover should be considered. For instance, the 2019 days’ sales in receivable value are lower than the industry average for the same year, showing that Petsin is getting its payments quickly. This money could be plowed back into the business...