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The following information was taken from the accounting records of three competitors for the 2016 fiscal year. Required: a. Explain how to calculate inventory turnover and the number of days sales in inventory. b. What do the two ratios tell us about inventory? c. Compare the ratios for the three companies and comment on the results. What might contribute to

The following information was taken from the accounting records of three competitors for the 2016 fiscal year.
The following information was taken from the accounting records of

Required:
a. Explain how to calculate inventory turnover and the number of day€™s sales in inventory.
b. What do the two ratios tell us about inventory?
c. Compare the ratios for the three companies and comment on the results. What might contribute to the lower turnover and higher number of days sales in inventory at Company A?

Transcribed Image Text:

Company A Company B Company C Inventory Turnover Ratio 11.4 14.8 14.9 Days in Inventory 32.0 24.7 24.5

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a and b. Because inventory turnover refers to the number of times a company has sold through its ent…View the full answer

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Related Book For answer-question
Understanding Financial Accounting

Understanding Financial Accounting

1st Canadian Edition

Authors: Christopher Burnley, Robert Hoskin, Maureen Fizzell, Donald

ISBN: 978-1118849385

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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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