Question

High's Companies, a home improvement store chain, reported the following summarized figures:

High's Companies, a home improvement store chain, reported the following summarized figures 囲(Click the icon to view the income statement) 囲(Click the icon to view the balance sheets.) High's has 100,000 common shares outstanding during 2018. Read the requirements Requirement 1. Compute the inventory turnover, days' sales in inventory, and gross profit percentage for High's Companies for 2018. Compute the inventory turnover. (Round your answer to two decimal places, XXX) The inventory turnover

Answer 1

Part 1

The inventory turnover = Cost of goods sold / Average merchandise inventory = 2.91 times

inventory turnover =20800/((7100+7200)/2) = 2.91

The days' sales in inventory = 365 days / Inventory turnover = 125 days

days' sales in inventory = 365/2.91 = 125

The gross profit percentage = Gross profit / Net sales revenue = 57.7%

gross profit percentage = (49200-20800)/49200 = 0.577

Part 2

Days' sales in average receivables = 365 days / Accounts receivable turnover ratio = 47 days

Accounts receivable turnover ratio = sales / average accounts receivable = 49200/((7300+5400)/2) = 7.748 times

Days' sales in average receivables = 365/7.748 = 47

Part 3

It has a high amount of inventory on hand and a low inventory turnover ratio. This need to analyzed and compared to the previous year as well as the industry average. It has a gross profit percentage, which is a good indication. The amount of time it takes to collect receivables is high, however, it depends on the credit terms.