Inferring Financial Information from Profitability and Liquidity Ratios
Dollar General Corporation operates approximately 8,400 general merchandise stores that feature quality merchandise at low prices to meet the needs of middle-, low-, and fixed-income families in southern, eastern, and midwestern states. For the year ended January 30, 2009, the company reported average inventories of $1,352 (in millions) and an inventory turnover of 5.47. Average total fixed assets were $1,272 (million), and the fixed asset turnover ratio was 8.22.
Required:
1. Calculate Dollar General’s gross profit percentage (expressed as a percentage with one decimal place). What does this imply about the amount of gross profit made from each dollar of sales?
TIP: Work backward from the fixed asset turnover and inventory turnover ratios to compute the amounts needed for the gross profit percentage.
2. Is this an improvement from the gross profit percentage of 28.2 percent earned during the previous year?
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