Asked by Tesha Cherry on Jun 30, 2024
Verified
The following data are taken from the financial statements: 
(a)Determine for each year (1) the inventory turnover, round answer to one decimal place.(2) the number of days' sales in inventory. Round intermediate calculations to whole numbers and final answers to two decimal places.(b)Comment on the favorable and unfavorable trends revealed by the data.
Inventory Turnover
A ratio showing how many times a company's inventory is sold and replaced over a period.
Days' Sales In Inventory
A financial metric indicating the average time in days that a company takes to turn its inventory into sales.
- Capability to scrutinize financial reports for evaluating a corporation's fiscal well-being.
- Acquire the ability to compute essential financial ratios and interpret their meanings.
Verified Answer
MA
mdshawon ahmedJul 07, 2024
Final Answer :
(a)Current
Preceding
Year
Year
(1)Cost of goods sold/Average inventory
5.2
7.5
(2)Average inventory/Average daily cost
of goods sold*
69.54 days
48.94 days
*Average daily cost of goods sold
(Cost of goods sold ÷ 365 days)$5,479
$7,397
(b)Sales decreased while gross profit increased. The inventory turnover declined and the number of days' sales in inventory increased, which are unfavorable trends.
Preceding
Year
Year
(1)Cost of goods sold/Average inventory
5.2
7.5
(2)Average inventory/Average daily cost
of goods sold*
69.54 days
48.94 days
*Average daily cost of goods sold
(Cost of goods sold ÷ 365 days)$5,479
$7,397
(b)Sales decreased while gross profit increased. The inventory turnover declined and the number of days' sales in inventory increased, which are unfavorable trends.
Learning Objectives
- Capability to scrutinize financial reports for evaluating a corporation's fiscal well-being.
- Acquire the ability to compute essential financial ratios and interpret their meanings.