Assume you are the vice president of operations of HG Lang. To prepare for a meeting with
Question:
Assume you are the vice president of operations of HG Lang. To prepare for a meeting with Adrienne Aiello, the company president, you are in the process of analyzing inventory.
HG Lang Designs operates an exclusive bridal boutique in Manhattan. All gowns are designed by Lang but are manufactured by various small firms in France and Italy. The following financial information for the company relates.
HG Lang Designs
Income Statements
Required
a. Compute inventory turnover and days ‘sales in inventory.
b. Based on your contacts in the industry, you know that inventory turnover at similar companies is generally around 7 and days ‘sales in inventory is around 52.How does HG Lang’s performance compare to theseaverages?
HG Lang Designs Balance Sheets December 31 2012 December 31, 2011 Assets Current assets: Cash Accounts receivable Inventory Other current assets Total current assets 65,000 352,000 1,795,000 62,000 2,274,000 1,611,000 $3,885,000 88,000 333,200 1,764,000 65,000 2,250,200 1,611,000 $3,861,200 Buildings, furniture, and fixtures, net Total assets Liabilities and Stockholders' Equity Current liabilities: Accounts payable Bank loan payable Other accrued payables Total current liabilities $ 73,000 89,000 13,000 175,000 311.000 486,000 65,200 110,000 11,000 186,200 366,000 552,200 Long-term debt Total liabilities Stockholders' equity: Common stock Retained earnings Total stockholders'equity 1,248,000 2,151,000 3,399,000 $3,885,000 1,248,000 2061,000 9,0 Total liabilities and stockholders' equity $3,861,200 December 31, 2012 December 31, 2011 Net sales Cost of goods sold Gross margin Operating expenses: $20,632,000 $19,282,000 14,442,000 6,190,000 12,533,000 6,749,000 Selling expenses 578,000 2,314,000 92 3,857,000 640,000 2,682,000 General and administrative expenses Total operating expenses Operating income Interest expense Income before taxes Income taxes Net income 2,868,000 2,839,000 994,000 1,845,000 3,819,000 1337,000 2482,000
Step by Step Answer:
a 2012 2011 Inventory turnover 14442000 1795000 80...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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