Question

Admiral Company and Corporal, Inc., compete against each other in general merchandise retailing, gas stations, pharmacies, and optical centers. Below is selected financial information for both companies from a recent year's financial statements (in millions) Admiral Company Corporal, Inc. Sales $30,660 $38,700 Cost of goods sold 25,550 36,500 Inventory, beginning of period 826 3,260 Inventory, end of period 826 3,860 a. Determine for both companies (1) the inventory turnover and (2) the number of days' sales in inventory. Round to one decimal place. Admiral Corporal 1. Inventory turnover 2. Number of days' sales in inventory days days

Answer 1

Average inventory = (Beginning Inventory + Ending Inventory) / 2

Inventory turnover ratio = Cost of goods sold / Average inventory

Inventory turnover ratio:

Admiral = $25,550 / [($826 + $826) / 2] = 30.9

Corporal = $36,500 / [($3,260 + $3,860) / 2] = 10.3

Number of days sales in inventory = Ending Inventory X 365 / Cost of goods sold

Number of days sales in inventory:

Admiral = $826 X 365 / $25,550 = 11.8

Corporal = $3,860 X 365 / $36,500 = 38.6