Test 3 Folder ACCT 21 X> M ch 8 Homework e C ezto mheducation.com/m tpx 10.00 po

Question

Test 3 Folder ACCT 21 X> M ch 8 Homework e C ezto mheducation.com/m tpx 10.00 points The table below contains selected information from recent financial statements of The Home Depot, Inc and Lowe's Companies, Inxc, two companies in the home improvement retail industry (S in milions) Home Depot 21214 2313 13114 1/13 Not sales Cost of goods sod Year-end wentory $ 80,672 $ 76,614 $ 55,277 $ 52 381 53,282 49332 28781 33.614 12500 12,020 9307 8T80 Gross profit ratio inventory tanover ratio Kwerage days in ieenry days 33% 3 T tmes Calcaate the gross prott ratio, the invemory tunover amo, and the average days in inventory for the tw companis tor thesr fiscal years ending n 2014 (Use 365 days a year. Round "Tnventory turnover ratio 1o 2 decimal places. Ember dollar amounts in mallions. Gross prolfe ratio HOME DEPOT Ratio MOME DEPOT TOSHIBA 2 3 4 6 tab

Explanation / Answer

SOLUTION

1. Gross Profit ratio = Gross Profit / Net sales

Gross Profit ratio = (Net Sales - Cost of goods sold) / Net sales

Home Depot-

= ($83,672 - $53,282) / $83,672

= $30,390 / $83,672 = 36.32%

Lowe's-

= ($55,277 - $28,781) / $55,277

= $26,496 / $55,277 = 47.93%

(2) Inventory turnover ratio = Cost of goods sold / Average inventory

Home Depot-

= $53,282 / [($12,020 + $12,500)/2]

= $53,282 / $12,260

= 4.35

Lowe's-

= $28,781 / [($8,780 + $9,307)/2]

= $28,781 / $9,044

= 3.19

(3) Average days in inventory = 365 / Inventory turnover ratio

Home Depot-

= 365 / 4.35 = 83.90

Lowe's-

= 365 / 3.19 = 114.42

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