Question

Inventory Turnover and days' sales in inventory Kroger, Sprouts Farmers Market, Inc., and Ingles 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 Ingles $3,113 Cost of merchandise sold $94,894 $3,460 8,123 264 372 Inventory, end of year Inventory, beginning of year 7,781 230 349 a. & b. Determine the inventory turnover and the number of days' sales in inventory (use 365 days) for the three companies. Round all interim calculations to one decimal place. For days' sales in inventory, round final answers to one decimal place, and for inventory turnover, round to two decimal places. Company names Inventory Turnover Days' Sales in Inventory Kroger 15.1 x 24 X days Sprouts 16.5 X 22 X days Ingles 21.2 X 17 X days days' sales in c. The inventory turnover ratios and days' sales in inventory are different X for Kroger and Sprouts. Ingles has a higher X inventory turnover and a lower X inventory than Kroger and Sprouts. These results suggest that Kroger and Sprouts are less X efficient than Ingles in managing inventory. d. If Ingles had Kroger's 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. 108.8 X million

Answer 1

B C D E F G H 1 2 a 3 4 a b c = (a+b)/2 d =(d/c) Cost Opening Ending Average of Inventory Company Inventory Inventory Inventory goods turnover Kroger 7789 8123 7956 94894 11.93 times Sprouts 230 264 247 3460 14.01 times Ingles 349 372 360.5 3113 8.64 times $ $ $ $ Inventory Turnover = Cost of goods sold/Average Inventory 5 6 7 8 9 10 11 b Days sales in Inventory = (365/Inventory turnover) Inventory Company Days Turnover Days Sales Kroger 365 11.93 30.6 days Sprouts 365 14.01 26.1 days Ingles 365 8.64 42.3 days 12 13 14 15 16 17 csimilar Lower Higher high 18 19 20 21 22 23 d If Ingles days sale is 30.6 days Average Inventory Days 30.6 Cost of goods sold 3113.0 b Days 365|c Average Inventory 261.0 =(a*b)/ 24 25 26 27 28 29 a Additional cash flow Avg Inventory (above). Actual Avg Inventory Additional Cash flow 30 261.0 millions 360.5 millions 99.5 millions b =(b-a) 31 32 33

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