Based on the information on the next page, what inventory costing method does CarMax use Do you believe this method is appropriate Explain b Calculate the common size amount for inventories for both years and comment on any differences that you note Given that the company is an automotive retailer, does this ratio seem appropriate c At February 28, 2015, Inventory was $2,086,874 thousand CarMax reports cost of sales of $13,691,824 thousand for the year ended February 28, 2017 and $13,130,915 thousand for the year ended February 29, 2016 Compute the inventory turnover for both years Interpret the ratio d CarMax reports revenue of $15,875,118 thousand for the year ended February 28, 2017 and $15,149,675 thousand for the year ended February 29, 2016 Calculate gross profit margins for both years e What is your opinion about the financial health of CarMax Use the ratios you calculated above to support your opinion f (This question does not pertain to CarMax) In general, discuss how companies can use the lower of cost or market (LCM) rule to manage earnings Please research and find two companies that have recently written down their inventory as a result of the LCM rule Provide details of the inventory write down The asset side of the 2017 balance sheet for CarMax Inc is below Consolidated Balance Sheets Feb 28, 2017 Feb 29, 2016 USD $ in Thousands (excerpts) CURRENT ASSETS Cash and cash equivalents 38,416 $ 37,394 Restricted cash from collections on auto loan receivables 380,353 343,829 Accounts receivable, net 152,388 132,171 Inventory 2,260,563 1,932,029 Other current assets 41,910 26,358 TOTAL CURRENT ASSETS 2,873,630 2,471,781 Auto loan receivables, net 10,596,076 9,536,892 Property and equipment, net 2,518,393 2,161,698 Deferred income taxes 150,962 161,862 Other assets 140,295 127,678 TOTAL ASSETS $16,279,356 $14,459,911 The asset side of the 2017 balance sheet for CarMax Inc is below Consolidated Balance Sheets Feb 28, 2017 Feb 29, 2016 USD $ in Thousands (excerpts) CURRENT ASSETS Cash and cash equivalents 38,416 $ 37,394 Restricted cash from collections on auto loan receivables 380,353 343,829 Accounts receivable, net 152,388 132,171 Inventory 2,260,563 1,932,029 Other current assets 41,910 26,358 TOTAL CURRENT ASSETS 2,873,630 2,471,781 Auto loan receivables, net 10,596,076 9,536,892 Property and equipment, net 2,518,393 2,161,698 Deferred income taxes 150,962 161,862 Other assets 140,295 127,678 TOTAL ASSETS $16,279,356 $14,459,911

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Question: Based on the information on the next page, what inventory costing method does CarMax use? Do you believe this method is appropriate? Explain. b. Calculate

Based on the information on the next page, what inventory costing method does CarMax use? Do you believe this method is appropriate? Explain.
b. Calculate the common-size amount for inventories for both years and comment on any differences that you note. Given that the company is an automotive retailer, does this ratio seem appropriate?
c. At February 28, 2015, Inventory was $2,086,874 thousand. CarMax reports cost of sales of $13,691,824 thousand for the year ended February 28, 2017 and $13,130,915 thousand for the year ended February 29, 2016. Compute the inventory turnover for both years. Interpret the ratio.
d. CarMax reports revenue of $15,875,118 thousand for the year ended February 28, 2017 and $15,149,675 thousand for the year ended February 29, 2016. Calculate gross profit margins for both years.
e. What is your opinion about the financial health of CarMax? Use the ratios you calculated above to support your opinion.
f. (This question does not pertain to CarMax) In general, discuss how companies can use the lower of cost or market (LCM) rule to manage earnings? Please research and find two companies that have recently written-down their inventory as a result of the LCM rule. Provide details of the inventory write-down

The asset side of the 2017 balance sheet for CarMax Inc. is below. Consolidated Balance Sheets - Feb. 28, 2017 Feb. 29, 2016 USD $ in Thousands (excerpts) CURRENT ASSETS: Cash and cash equivalents 38,416 $ 37,394 Restricted cash from collections on auto loan receivables 380,353 343,829 Accounts receivable, net 152,388 132,171 Inventory 2,260,563 1,932,029 Other current assets 41,910 26,358 TOTAL CURRENT ASSETS 2,873,630 2,471,781 Auto loan receivables, net 10,596,076 9,536,892 Property and equipment, net 2,518,393 2,161,698 Deferred income taxes 150,962 161,862 Other assets 140,295 127,678 TOTAL ASSETS $16,279,356 $14,459,911 The asset side of the 2017 balance sheet for CarMax Inc. is below. Consolidated Balance Sheets - Feb. 28, 2017 Feb. 29, 2016 USD $ in Thousands (excerpts) CURRENT ASSETS: Cash and cash equivalents 38,416 $ 37,394 Restricted cash from collections on auto loan receivables 380,353 343,829 Accounts receivable, net 152,388 132,171 Inventory 2,260,563 1,932,029 Other current assets 41,910 26,358 TOTAL CURRENT ASSETS 2,873,630 2,471,781 Auto loan receivables, net 10,596,076 9,536,892 Property and equipment, net 2,518,393 2,161,698 Deferred income taxes 150,962 161,862 Other assets 140,295 127,678 TOTAL ASSETS $16,279,356 $14,459,911

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