HG Lang Designs operates an exclusive bridal boutique in Manhattan. All gowns are designed by Lang but
Question:
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
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.
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 these averages?
HG Lang Designs Balance Sheets December 31, December 31, 2021 2020 Assets Current assets: $ 65,000 $ 88,000 333,200 Cash Accounts receivable 352,000 Inventory 1,795,000 1,764,000 Other current assets 62,000 65,000 Total current assets 2,274,000 2,250,200 Buildings, furniture, and fixtures, net 1,611,000 1,611,000 Total assets $3,885,000 $3,861,200 Liabilities and Stockholders' Equity Current liabilities: $ 73,000 $ 65,200 Accounts payable Bank loan payable Other accrued payables 89,000 110,000 13,000 11,000 Total current liabilities 175,000 186,200 Long-term debt 311,000 366,000 Total liabilities 486,000 552,200 Stockholders' equity: Common stock 1,248,000 1,248,000 Retained earnings 2,151,000 2,061,000 Total stockholders' equity 3,399,000 3,309,000 Total liabilities and stockholders' equity $3,885,000 $3,861,200
Step by Step Answer:
a 2021 2020 Inventory turnover 14442000 1795000 805 1...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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