Question

Accounts Receivable and Inventory Analyses for Kellogg's and General Mills The following information was obtained from the fiscal year 2015 and 2014 financial statements included in Form 10-K of Kellogg Company and Subsidiaries and General Mills, Inc. and Subsidiaries (Year-ends for Kellogg's are January 2, 2016, and January 3, 2015, and for General Mills are May 31, 2015, and May 25, 2014.) Assume all sales are on credit for both companies (in millions) Kellogg's General Mills Accounts receivable, net End of 2015 $1,200 End of 2014 1,600 Inventories End of 2015 1.300 End of 2014 700 Net sales 2015 14,000 2014 15,000 Cost of goods sold" 2015 9,000 2014 8,000 Described as receivables" by General Mils "Described as "cost of sales" by General Mills $1,500 1.500 1.600 3,200 18,000 17,000 12,000 11,000 Required: Assume a 360-day year, Using the information provided, compute the following for each company for 2015

Answer 1

a. Accounts Receivable Turnover Ratio = Net Sales Revenue / Average Accounts Receivable
Kelloggs = $14000 / $1400 = 10 times
Average Accounts Receivable = ($1200 + 1600) / 2 = $1400
General Mills = $18000 / $1500 = 12 times
Average Accounts Receivable = ($1500 + 1500) /2 = $1500

b. Number of days sales in receivables = 360 / Accounts Receivable Turnover Ratio
Kelloggs = 360 / 10 = 36 days
General Mills = 360 / 12 = 30 days

c. Inventory Turnover Ratio = Cost of Goods Sold / Average Inventory
Kelloggs = $9000 / $1000 = 9 times
Average Inventory = ($1300 + 700) / 2 = $1000
General Mills = $12000 / $2400 = 5 times
Average Inventory = ($1600 + 3200) = $2400

d. Number of days sales in inventory = 360 / Inventory Turnover Ratio
Kelloggs = 360 / 9 = 40 days
General Mills = 360 / 5 = 72 days

e. Cash to cash operating cycle = Days inventory outstanding + Days sales outstanding
Kelloggs = 36 + 40 = 76 days
General Mills = 30 + 72 = 102 days