Part a: inventory turnover for 20Y4 and 20Y3: 5.8 times and 10.2 times.
Part b: days' sales in inventory for 20Y4 and 20Y3: 62.93 and 36.5 days.
Part c: positive trend for the company.
<h3>Define the term Inventory Turnover Ratio?</h3>
- One of many liquidity-type ratios, the inventory turnover ratio gauges how rapidly a company converts its stockpiles into sales over a given period of time.
- This ratio is examined on a monthly and quarterly basis.
The data given is-
Cost of merchandise sold $3,598,900 $3,015,630
Inventories
Beginning of year $593,000 $589,600
End of year $648,000 $593,000
Part a: inventory turnover for 20Y4 and 20Y3.
Cost of goods sold divided by average inventory represents inventory turnover.
For 20Y4: $3,598,900 /($593,000 + $648,000) divided by 2 = $3,598,900 / $620,500 = 5.8 times
For 20Y3: $3,015,630 / ($589,600 + 593,000) divided by 2 = $3,015,630 / $591,300 = 10.2 times
Part b: days' sales in inventory for 20Y4 and 20Y3.
Number of days' sales in inventory = 365 / inventory turnover
20Y4: 365 / 5.8 = 62.93 days
20Y3: 365 / 10.2 = 36.5 days
Part c:
A reduction in the number of days' sales within inventories and a rise there in inventory turnover ratio suggest a positive trend for the company.
To know more about the Inventory Turnover Ratio, here
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