Question

Consider a firm with an annual net income of $20 million, revenue of $60 million and cost of goods sold of $25 million. If the balance sheet amounts show $2 million of inventory and $500,000 of property, plant & equipment, how many weeks of supply does the firm hold?

Answer 1

Answer: 4.16 weeks.

Explanation:

To calculate this we will use the Weeks of Supply formula as well as an assumption of a 52 week year. There are a couple of variants to the formula but for the purpose of the details given here we shall use the following,

Weeks of supply = (Average inventory/ Cost of goods sold) * 52 weeks

= (2/25)*52

= 4.16

The weeks of supply the firm holds is therefore 4.16 weeks.

If you have any questions or need any clarification, please do react or comment. Thank you.