Magic Muffins, Inc., and Top Roast Coffee Corporation are both specialty food chains. The two companies reported
Question:
Magic Muffins, Inc., and Top Roast Coffee Corporation are both specialty food chains. The two companies reported these figures, in millions:
Requirements
1. Compute the gross profit percentage and the rate of inventory turnover for Magic Muffins and Top Roast Coffee for 2014.
2. Based on these statistics, which company looks more profitable? Why? What other expense category should we consider in evaluating these twocompanies?
A1 Magic Muffins, Inc. Income Statements (Adapted) Years Ended December 31 2 (Amounts in millions) 2014 2013 Revenues Net sales 540 $ 705 Costs and Expenses: Cost of goods sold Selling, general, and administrative expenses 470 595 A1 Magic Muffins, Inc. Balance Sheets (Adapted) December 31 2 (Amounts in millions) 2014 2013 Assets Current assets: Cash and temporary investments Receivables Inventories S 21 24 25 40 1830 A1 Top Roast Coffee Corporation Income Statements (Adapted) Years Ended December 31 2 (Amounts in millions) 2014 2013 Net sales 7,710 3,170 2975 2,360 4 Cost of goods sold 600 Selling, genera, and administrative expenses A1 Top Roast Coffee Corporation Balance Sheets (Adapted) December 31 2 (Amounts in millions) 2014 2013 Assets Current assets: 5 Cash and temporary investments $320175 195 Receivables, net 220 7Inventories
Step by Step Answer:
Req 1 Req 2 From these statistics its hard to tell whether Mag...View the full answer
Financial Accounting
ISBN: 978-0133427530
10th edition
Authors: Walter Harrison, Charles Horngren, William Thomas
Related Video
Inventory turnover is a key metric that helps businesses evaluate the efficiency of their operations. A high turnover ratio is generally considered positive, indicating that the company is effectively selling its inventory and making efficient use of its resources. On the other hand, a low turnover ratio may indicate issues such as overstocking or slow sales and may require further examination to identify and address the underlying causes. Businesses use this ratio to make decisions about inventory levels, production schedules, and pricing strategies. It also helps businesses to identify areas where they may need to make improvements, such as reducing lead times for production or optimizing sales and marketing efforts. Additionally, inventory turnover is used by investors and analysts as a key performance indicator to evaluate the financial health and growth potential of a company.
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