use the following hypothetical data for Walgreens in years 11 and 12 to project

Question

use the following hypothetical data for Walgreens in years 11 and 12 to project revenues, cost of goods sold, and inventory for year +1. Assume that Walgreen's year +1 revenue growth rate, gross profit margin, and inventory turnover will be identical to year 12. Project the average inventory balance in year +1 and use it to compute the implied ending inventory balance. Year 11: sales revenues $53,762, cost of goods sold $38,518, ending inventory $6,791 Year 12: sales revenues $ 59,034, cost of goods sold $42,391, ending inventory $7,249

Explanation / Answer

Calculate revenue growth rate:

$59,034/$53,762=1.0980

Revenue for +1 year will grow at 1.0981

Revenue=59034*1.0981=64,822.98

Cost of goods sold for year +1:

42391/59034*64822.98=$46,547.94

Inventory turnover ratio=cost of goods sold/Average inventory

=$42,391/(6791+7249)/2=42391/7020=6.039

Inventory turnover days=365*(1/6.039)=60.4405

Calculate inventory:

Inventory =(cost of goods sold /365)*inventory turnover

=46547/365*60.4405=7707.737

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