The table below contains selected information from recent financial statements of The Home Depot, Inc., and Lowes
Question:
The table below contains selected information from recent financial statements of The Home Depot, Inc., and Lowe’s Companies, Inc., two companies in the home improvement retail industry ($ in millions):
Required:
Calculate the gross profit ratio, the inventory turnover ratio, and the average days in inventory for the two companies for their fiscal years ending in 2020. Compare your calculations for the two companies, taking into account the industry averages.
Net sales Cost of goods sold Year-end inventory Industry averages: Gross profit ratio Inventory turnover ratio Average days in inventory Home Depot 2/2/2020 $110,225 72,653 14,531 27.25% 2/3/2019 $108,203 71,043 13,925 3.63 times 101 days Lowe's 1/31/2020 $72,148 49,205 13,179 2/1/2019 $71,309 48,401 12,561
Step by Step Answer:
The gross profit ratios for the two companies are similar and both e...View the full answer
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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