ing una Controlling Debtors, Creditors and Stock 331 e following information rel
ID: 2568178 • Letter: I
Question
ing una Controlling Debtors, Creditors and Stock 331 e following information relates to two similar firms: in phercise 18.2: The Brunato's Books Hazouri's Books Stock (1/1/05) 54 200 52 800 307 625 51 600 54 200 280 370 Stock (31/12/05) Cost of goods sold for 2005 Calculate the stock turnover rate in times per annum and in days for each of the above- named firms for 2005. Which firm has managed its investment in inventory more efficiently during 2005? Explain your answer fully What other information could you use to evaluate the sucess or oherwise of the stock turnover rates determined in a? ·If the stock turnover agree? Explain your answer fully. ratio has increased, it means the business has sold more goods.' Do you 1Explanation / Answer
a. Stock turnover rate = Cost of goods sold/Average inventory
Stock turnover rate in days = 365/stock turnover rate
Brunato's books:
Stock turnover rate = 307625/((54200+52800)/2) = 5.75
Stock turnover rate = 365/5.75 = 63.48 days
Hazouri's books:
Stock turnover rate = 280370/((54200+51600)/2) = 5.3
Stock turnover rate = 365/5.3 = 68.86 days
B. From the first answer, it can be said that brunato's has managed his inventory better than hazouri's since its inventory gets sold in less days (64<68).
C. The other information that could have been used to evaluate the position of the companies in a better way could have been the "profit margin". The profit margin could tell whether inventory turnover is in the good of the company or not.
D. Yes, if ratio increases it means that inventory gets sold fast and business has sold more goods in an year then the one with a lower inventory turnover ratio.
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