CP7-3 Calculating and Interpreting the Inventory Turnover Ratio and Days to Sell

Question

CP7-3 Calculating and Interpreting the Inventory Turnover Ratio and Days to Sell [LO 7-5] GameWorld Corp. is the world's largest multichannel video game retailer. The company reported the following amounts in its financial statements (in millions) 2013 2012 $10,900 $10,400 Net Sales Revenue Cost of Goods Sold Beginning Inventory Ending Inventory 7,040 6,640 2,000 1,300 2,400 2,000 Required 1. Determine the inventory turnover ratio and average days to sell inventory for 2013 and 2012. (Use 365 days in a year. Round your intermediate and final answers to 1 decimal place.) TIP: Remember to use costs in both the numerator (CGS) and denominator (average inventory) 2013 2012 times per year days Inventory Turnover Ratio times per year Days to Sell days 2. Is GameWorld performing better than its competitor Ultimate Value where inventory turned over 3.5 times during 2013 (65 days to sell) Yes 0

Explanation / Answer

1) Calculate inventory turnover ratio and days to sell :

2) No, Gameworld is not performinng better than its competitor.

2013 2012 Average inventory 2200 1650 Inventory turnover ratio 7040/2200 = 3.2 6640/1650 = 4.0 Days to sell 365/3.2 = 114.0 days 365/4 = 91.3 days

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