Using the provided images, please evaluate the following for inventory: A. Which
ID: 2572240 • Letter: U
Question
Using the provided images, please evaluate the following for inventory:
A. Which company appeared to manage inventory more effectively? What direction is the trend moving over the two-year period? Interpret findings.
B. Compare company performance to industry information. Did each company perform better or worse than its industry? Why?
1. Record the accounts balances from the year-end financial statements Company #1 Company #2 Income Statement (In millions) Starbucks McDonald's For the vear ended Net Sales Cost of Sales 2016* 21315,900 8,511,100 2015** 19.162,700 24.621,90025 7.787500 2015** 25,413,000 15,623,800 2016* 14,417,200 Use latest available Annual Report/Form 10-K, (it may be 2017). ** Use prior year Company #1 Company #2 Balance Sheet (In millions) Starbucks McDonald's 2016* 1,474,100 2015** 1,298.700 For the vear ended Accounts Receivable, net Allowance for Doubtful Accounts Inventories 2016* 768,800 9,400,000 2015** 719,000 10,800,000 1378.500 1306.400 58,900 100,100 Save your source of information as pdf file or weblink. Attach a copy of income statement and balance sheet to your assignment. 2. Compute ratios. Use 365 days in year. Round numbers to one decimal place Ratios Company #1 Company #2 Starbucks McDonald's Year 2016* 2015 2016 2015 10.4 21.9 215.6 1.49 26.7 12.70 18.7 139.6 2.3 27.7 Receivables Turnover Days Sales in Receivables13.2 Inventory Turnover Days' Sales in Inventory 6.2 5.96 59.1 61.2Explanation / Answer
A. The inventory turnover which is measured by dividing the cost of sales by inventories, denotes how fast the inventory is moving and generating sales revenue. It thus reflects the efficiency of inventory management. The higher the inventory turnover, the more efficient is the management of inventories and vice-versa.
The days sales in inventory is measured by dividing the number of days in a year by the inventory turnover. It denotes the number of days a company will take to sell its inventory. Hence the lesser the days sales in inventory, the better managed is the inventory.
From the data provided, it is thus observed that McDonald’s is managing its inventory more effectively than Starbucks since it has a higher inventory turnover ratio and lower days sales in inventory.
The trend over the two-year period is an improving trend with an increasing inventory turnover and a decreasing day’s sales in inventory for both the companies.
B. In comparison to the industry information for 2016, it is observed that McDonald’s had a higher inventory turnover of 215.6 and lower days sales in inventory of 1.49 and hence performed much better than the industry. However in case of Starbucks, the inventory turnover at 6.2 was lower than the industry ratio of 8.33 and days sales in inventory at 59.1 was higher than the industry's 12.85 thus denoting that its inventory management performance was worse than the industry performance.
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