Question

Home Depot’s annual turns are 5.74, its Cost of Goods Sold (COGS) is $48.15 Billion, and its gross margin is 33%. Recall, gross margin = (Revenue – COGS) / Revenue. What is the average inventory it holds in $ Billion? Blank 1. Calculate the answer by read surrounding text.

Answer 1

Answer:

The average inventory held by Home Depot is $12.52 Billion.

Explanation:

The following are given in the question:

Inventory turnover = 5.74

Cost of Goods Sold (COGS) = $48.15 Billion

Gross margin  = 33%, or 0.33

We can obtain revenue using the following formula given in the question:

Gross margin = (Revenue – COGS) / Revenue ............... (1)

Substituting relevant values into equation (1) and solve for Revenue, we have:

0.33 = (Revenue – $48.15) / Revenue

0.33Revenue = Revenue – $48.15

Revenue - 0.33Revenue = $48.15

Revenue(1 - 0.33) = $48.15

Revenue = $48.15 / (1 - 0.33)

Revenue = $48.15 / 0.67

Revenue = $71.87 Billion

The average inventory can now be calculated using the formula for calculating the Inventory turnover as follows:

Inventory turnover rate = Revenue / Average inventory .............. (2)

Substituting relevant values into equation (2) and solve for Average inventory, we have:

5.74 = $71.87 / Average inventory

Average inventory * 5.74 = $71.87

Average inventory = $71.87 / 5.74 = $12.52 Billion

Therefore, the average inventory held by Home Depot is $12.52 Billion.