Question

Selected are recent balance sheet and income statement information:

($ millions)	Ann Taylor	Coach Inc
Sales	$2,212	$4,763
Cost of goods sold	1,004	1,297
Average accounts receivable	19	159
Average inventory	204	463
Average total assets	907	2,870

Required

1. For each company, compute the following:

1. Accounts receivable turnover
2. Inventory turnover
3. Asset turnover

2. Interpret and comment on any differences you observe between the turnover rates for these two companies, i.e. for each ratio, which company has the better result.  

Answer 1

907 3 Ann Taylor Coach Inc Sales 2212 4763 Cost of goods sold 1004 1297 Average Account recivable 19 159 Average Inventory 204 463 Average Total Assets 2870 Credit Sales/Avg account Credit Sales/Avg account Account recivable turnover ratio= receivable receivable 116 Account recivable turnover in days Cost of Goods sold/Average Cost of Goods sold/Average inventory turnover Inventory Inventory 3 inventory turnover in days 130 Asset turnover ratios Net Sales/Avg Total Assets Net Sales/Avg Total Assets 2.44 1.66 Comment Customer of Ann Taylor take on an average 3 days to pay their receivables in comparision of 12 days of Coach Inc Hence Ann Taylor is in better position to convert account receivable to cash 2 Inventory holding period of Coach Inc is 130 days that is more than 74 days of Ann Taylor. Ann Taylor is better position to convert stock to cash in comparision of Coach Inc. 3 Asset turnover ratio of Ann Taylor is 2.44 that is better than 1.66 of Coaching. Higher turnover ratio means that the company is using its assets more efficiently. 74