Question

Consider a firm with an annual net income of $20 million, revenue of $60 million and cost of goods sold of $25 million. If the balance sheet amounts show $2 million of inventory and $500,000 of property, plant & equipment.

a) What is the inventory turnover?

b) How many weeks of supply does the firm hold?

Answer 1

Answer:

Explanation:

a.) Inventory turnover = Cost of goods sold / Inventory

Cost of goods sold= $25mill.

Inventory = $2mill.

Therefore, Inventory turnover= 25/2 = 50

b.) Weeks of supply held =( Inventory / Cost of goods sold) *52

**It's multiplied by 52 since there are 52 weeks in a year.

Weeks of supply held = (2 / 25) *52 = 4.16 weeks