Question

Inventory Analysis A company reports the following: Cost of goods sold Average inventory Determine (a) the inventory turnover and (b) the number of days' sales in inventory. Round interim calculations to the nearest dollar and final answers to one decimal place. Assume 365 days a year $224,840 56,210 a. Inventory turnover days b. Number of days' sales in inventory

Answer 1

Answer(1): (a): Inventory turnover = Cost of goods sold / Average inventory

Inventory turnover: 224840 / 56210 = 4 times

(b): Number of days sales in inventory = No. of days in a year / Inventory turnover ratio

Number of days sales in inventory: 365 / 4 = 91.25 days

Answer(2):

(a): Ratio of fixed asset to long term liabilities: 1167400 / 449000 = 2.6

(b): Ratio of liabilities to stockholder's equity: 1414350 / 1571500 = .9

Answer(3):

(a): Return on stockholder's equity = (Net Income / Average stockholder's equity) * 100

Return on stockholder's equity: 315000 / 2916667 = 10.799 or 10.8%

(b): Return on common stockholder's equity = (Net Income - Preferred dividend) / Average common stockholder's equity

ROCE: (315000-12600) / 1482353 = 20.3999 or 20.4%

Answer(4):

(a): EPS on common equity = (Net Income - Preferred dividend) / Shares of common stock outstanding

EPS on common equity: (572000-32000) / 90000 = 6

(b): P/E ratio = Market price per share / EPS

P/E Ratio: 47.4 / 6 = 7.9

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