Trans Canada Motors Ltd. and X Country Trucks Inc. are competitors. The companies reported the following amounts,
Question:
Trans Canada Motors Ltd. and X Country Trucks Inc. are competitors. The companies reported the following amounts, in millions. In January 2017, you wish to make an investment in one of these companies. Results for 2016 are not yet available.
Requirements
1. Compute both companies' gross profit percentage and their rates of inventory turnover during 2015 and 2014.
2. Can you tell from these statistics which company should be more profitable in percentage terms? Why? What other important category of expenses do the gross profit percentage and the inventory turnover ratio fail to consider?
Inventory Turnover RatioThe inventory turnover ratio is a ratio of cost of goods sold to its average inventory. It is measured in times with respect to the cost of goods sold in a year normally. Inventory Turnover Ratio FormulaWhere,...
Trans Canada Motors Ltd. Statement of Earnings Fiscal Years 3 (Amounts in millions) 4 Net sales 5 Cost of sales 6 Selling, general, and administrative e 2015 $ 84.2 63.4 12.2 2014 $73.6 55.2 11.3 2013 68.9 52.6 11.2 Trans Canada Motors Ltd. Balance Sheet Year-End 3 (Amounts in millions) 4 Assets 2015 2014 2013 5 Cash and cash equivalents 6 Accounts receivable S 11.3 13.4 8.0 $ 16.4 10.9 7.8 13.9 9.9 6.9 7 Inventories X Country Trucks Inc. Statement of Operations Fiscal Years 2014 $19.3 13.7 3 (Amounts in millions) 2015 S24.0 15.9 3.0 2013 13.9 9.9 1.9 4 Net sales 5 Cost of sales Selling, general, and administrative e 6 2.4 X Country Trucks Inc. Balance Sheet Year-End 2014 3 (Amounts in millions) 4 Assets 2015 2013 $9.4 6.0 0.4 5 Cash and cash equivalents 6.4 S 3.5 0.9 6 Accounts receivable 7 Inventories 0.3
Step by Step Answer:
Req 1 Req 2 These statistics suggest that X Country Trucks should be more profitable ...View the full answer
Financial Accounting
ISBN: 978-0134564142
6th Canadian edition
Authors: Walter Jr. Harrison, Charles T. Horngren, C. William Thomas, Greg Berberich, Catherine Seguin
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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