Question

SHOW ME HOW CLUBU Kroger, Sprouts Farmers Market, Inc., and Whole Foods Markets, Inc. are three grocery chains in the United States. Inventory management is an important aspect of the grocery retail business. Recent balance sheets for these three companies indicated the following merchandise inventory (in millions) information: Kroger Sprouts Whole Foods Cost of merchandise sold $85,512 $2,541 $9,973 Inventory, end of year 5,688 165 500 Inventory, beginning of year 5,651 1 43 a. & b. Determine the inventory turnover and the number of days' sales in inventory (use 365 days and round to one decimal place) for the three companies. Round all interim calculations to one decimal place. For days' sales in inventory, round final answers to the nearest day, and for inventory turnover, round to two decimal place. Company names Inventory Turnover Days' Sales in Inventory Kroger days Sprouts days Whole Foods c. The inventory turnover ratios and days' sales in inventory are for Kroger and Sprouts. Whole Foods has a inventory turnover and a days' sales in Inventory than Kroger and Sprouts. These results suggest that Kroger and Sprouts are efficient than Whole Foods in managing inventory. d. If Kroger had Whole Foods' days' sales in inventory, how much additional cash flow would have been generated from the smaller inventory relative to its actual average Inventory position? Round interim calculations to one decimal place and your final answer to the nearest million. million Previous

Answer 1

Answer a & b:

Kroger:

Average Inventory = (Inventory, End of Year + Inventory, Beginning of Year) / 2
Average Inventory = ($5,688 + $5,651) / 2
Average Inventory = $5,669.50

Inventory Turnover = Cost of Goods Sold / Average Inventory
Inventory Turnover = $85,512 / $5,669.50
Inventory Turnover = 15.08

Days’ Sales in Inventory = 365 * Average Inventory / Cost of Goods Sold
Days’ Sales in Inventory = 365 * $5,669.50 / $85,512
Days’ Sales in Inventory = 24 days

Sprouts:

Average Inventory = (Inventory, End of Year + Inventory, Beginning of Year) / 2
Average Inventory = ($165 + $143) / 2
Average Inventory = $154

Inventory Turnover = Cost of Goods Sold / Average Inventory
Inventory Turnover = $2,541 / $154
Inventory Turnover = 16.50

Days’ Sales in Inventory = 365 * Average Inventory / Cost of Goods Sold
Days’ Sales in Inventory = 365 * $154 / $2,541
Days’ Sales in Inventory = 22 days

Whole Foods:

Average Inventory = (Inventory, End of Year + Inventory, Beginning of Year) / 2
Average Inventory = ($500 + $441) / 2
Average Inventory = $470.50

Inventory Turnover = Cost of Goods Sold / Average Inventory
Inventory Turnover = $9,973 / $470.50
Inventory Turnover = 21.20

Days’ Sales in Inventory = 365 * Average Inventory / Cost of Goods Sold
Days’ Sales in Inventory = 365 * $470.50 / $9,973
Days’ Sales in Inventory = 17 days

Answer c.

The inventory turnover ratios and days' sales in inventory are similar for Kroger and Sprouts. Whole Foods has a higher inventory turnover and a lower days' sales in inventory than Kroger and Sprouts. These results suggest that Kroger and Sprouts are less efficient than Whole Foods in managing inventory.

Answer d.

Kroger:

Actual Average Inventory = $5,669.5 million

Days’ Sales in Inventory = 365 * Expected Average Inventory / Cost of Goods Sold
17 = 365 * Expected Average Inventory / $85,512
Expected Average Inventory = $3,982.8 million

Additional Cash Flow = $5,669.5 - $3,982.8 million
Additional Cash Flow = $1,686.7 million or $1,687

So, additional cash flow is $1,687 million