Ppt on inventory turnover ratio

Part Ten Financial Analysis. Learning Objectives Understand the parties interested in performing financial ratio analysis and the common types of ratio.

Interest Earned = EBIT / Interest –1138 / 7 = 162.57 times Cash Coverage = (EBIT + Depreciation) / Interest –(1138 + 116) / 7 = 179.14 times 3-14 Computing Inventory Ratios Inventory Turnover = Cost of Goods Sold / Inventory –2006 / 301 = 6.66 times Days’ Sales in Inventory = 365 / Inventory Turnover –365 / 6.66 = 55 days 3-15 Computing Receivables Ratios Receivables Turnover = Sales / Accounts Receivable –5000 / 956 = 5.23 times Days’ Sales in Receivables = 365 / Receivables/


4-1 CHAPTER 4 Analysis of Financial Statements Ratio Analysis Du Pont system Effects of improving ratios Limitations of ratio analysis.

to make the needed investment in fixed assets. 4-48 Potential problems and limitations of financial ratio analysis Inflation can badly distort many firms’ balance sheet data. Thus the recorded values are often substantially different from “true” values Seasonal factors can distort ratio analysis. For example the inventory turnover ratio for a food processor will be radically different if the balance sheet figure used for/


Financial Analysis 173A. Ratio analysis, common size analysis and percentage change analysis all tell same story Du Pont system also tells the same story.

and NOTE: years should go left to right… 2006E20052003Ind. CR2.58x1.46x2.3x2.7x QR0.93x0.5x0.8x1.0x What is the inventory turnover ratio (another “times” number) as compared to the industry average? Inv. turnover= = = 4.10x. Sales Inventories $7,036 $1,716 2006E20052004Ind. Inv. T.4.1x4.5x4.8x6.1x Interpretation Inventory turnover is below industry average. The company is carrying almost 3 months of/


Financial Statements and Ratio Analysis CHAPTER 2.

) (in 1,000 TL) Liquidity Ratios Current ratio? Quick (acid-test) ratio? Leverage Ratios Debt-to-equity ratio? Debt-to-total assets (book leverage) ratio? Short term debt-to-total assets ratio? Long term debt-to-total assets ratio? Leverage Ratios Long term debt ratio? Times interest earned Cash coverage ratio? Turnover Ratios Inventory turnover ratio? Days’ sales in receivables Receivables turnover ratio? Day’s sales in receivables? Asset turnover ratio? Profitability Ratios Profit margin? ROA? ROE? Market/


Analysis of Financial Statements Analysis of Financial Statements n Financial statements and reports n Ratio analysis.

little weaker than average. n Inventory turnover ratio n Days sales outstanding (accounts receivable) n Fixed assets turnover n Total assets turnover Asset Management Ratios Sales Inventory 2010 4.8x 2011 4.6x Industry 7.0x Low inventory turnover--excess inventory for current level of sales. Inventory turnover =. (To indicate whether a firm carries too many inventories and whether it manages inventories effectively.) n Sales prices include markups but inventories carried at cost. n Sales/


3 RD SESSION. Ratio Analysis “Ratio is the mathematical relationship of one number to another number”. Most important benefit – Facilitation of unbiased.

assets’. Most commonly used AMR: – Inventory turnover ratio (times/days) – Receivable turnover ratio (times/days) – Accounts Payable turnover (times/days) – Fixed asset turnover – Total asset turnover i.Inventory turnover ratio Formulas: (COGS/avg. inv.) (365/inv. turnover) Inventory turnover times measures how many times in an year the firm’s inventory has been sold. – What if inventory turnover ratio is low or high? Inventory turnover days measure how many days the inventory stays with us before we are/


Copyright © 2012 Pearson Prentice Hall. All rights reserved. Chapter 3 Financial Statements and Ratio Analysis.

. Comparison to industry averages is also popular, as in the following example. © 2012 Pearson Prentice Hall. All rights reserved. 3-16 Using Financial Ratios: Types of Ratio Comparisons (cont.) Caldwell Manufacturing ’ s calculated inventory turnover for 2012 and the average inventory turnover were as follows: Inventory turnover, 2012 Caldwell Manufacturing14.8 Industry average 9.7 © 2012 Pearson Prentice Hall. All rights reserved. 3-17 Table 3.5 Financial/


3.4 Ratio Analysis Aims to judge a firm’s financial performance. Based on assumption that firms want to make a profit.

caused by a decline in sales or an increase in assets employed. Financial efficiency ratios: stock turnover Inventory or stock turnover measures how quickly stock is converted into sales. Inventory turnover = cost of sales ÷ average inventories held This shows the number of times per year that a firm sells its stock. For example: Inventory turnover of 4 means that a firm sells its stock __ times a year (i/


17-1 Ratios can be expressed in three different ways: 1. Ratio (e.g., current ratio of 2:1) 2. % (e.g., profit margin of 2%) 3. $ (e.g., EPS of $2.25)

the year. = 12.73 times $140,000 ($10,000 + $12,000) ÷ 2 Inventory Turnover = #5 17-21 Inventory Turnover Cost of Goods Sold Average Inventory Inventory Turnover = Would 5 be a desirable number of times for inventory to turnover? = 12.73 times $140,000 ($10,000 + $12,000) ÷ 2 Inventory Turnover = #5 17-22 Equity, or Long–Term Solvency Ratios This is part of the information to calculate the equity, or long/


Copyright © 2012 Pearson Prentice Hall. All rights reserved. Chapter 3 Financial Statements and Ratio Analysis.

to emulate. Comparison to industry averages is also popular, as in the following example. © 2012 Pearson Prentice Hall. All rights reserved. 3-19 Using Financial Ratios: Types of Ratio Comparisons (cont.) Caldwell Manufacturing ’ s calculated inventory turnover for 2012 and the average inventory turnover were as follows: Inventory turnover, 2012 Caldwell Manufacturing14.8 Industry average 9.7 © 2012 Pearson Prentice Hall. All rights reserved. 3-20 Using Financial/


Dr Debra Munsterman Minnesota West College

investment. Assets management—Working Capital Cycle Ratios Inventory Turnover Measures the annual rate at which the inventory is sold. Inventory Days Converts inventory rate to “days inventory is on hand” Sales / Inventory = Inventory Turnover The days in the period can then be divided by the inventory turnover formula to calculate the days it takes to sell the inventory on hand or "inventory turnover days". Accounts Receivable Turnover R/A Turnover Measures the annual rate at which accounts/


Inventory and Cost of Goods Sold

-of-cost-or-market, the store calculates its ending inventory balance. 6-32 32 Inventory turnover ratio LO8 Analyze management of inventory using the inventory turnover ratio and gross profit ratio If managers purchase too much inventory, the company runs the risk of the inventory becoming obsolete and market value falling below cost. Analysts as well as managers often use the inventory turnover ratio to evaluate a company’s effectiveness in managing its investment/


8/18/20151 FINANCIAL MANAGEMENT. 8/18/20152 Financial Ratio Analysis.

cost of goods sold Inventory turnover ratio Average collection period Fixed assets turn over ratio 8/18/201525 Measures No of times inventory turned over in a year OR No of days of inventory held by company to sp sales Times Inventory turned over = Net sales OR COGS Avg inventory Avg stocks Inventory measured in days of sale = 365 x Avg inventory Net Sales INVENTORY TURN OVER RATIO 8/18/201526 A/


Critical Concept Preparing a financial plan is a critical step Entrepreneurs can gain valuable insight through: ► Pro forma statements ► Ratio analysis.

effectively it is putting its resources to work. 6. Average Inventory Turnover Ratio - Tells the average number of times a firms inventory is “turned over” or sold out during the accounting period. Average Inventory = Cost of Goods Sold = $1,290,117 = 2.05 times Turnover Ratio Average Inventory* $630,600 a year *Average Inventory = Beginning Inventory + Ending Inventory 2 Twelve Key Ratios Operating Ratios - Evaluate a firm’s overall performance and show how/


Financial Accounting Dave Ludwick, P.Eng, MBA, PMP, PhD Chapter 20 Ratios Analysis.

in receivables) Financial Accounting Dave Ludwick, P.Eng, MBA, PMP, PhD Efficiency Inventory Turnover = COGS/Average Inventory –Where average inventory = (beginning inventory + ending inventory)/2 –Measures the number of times the inventory is turned over –Generally, a high inventory turnover is an indicator of good inventory management. –But a high ratio can also mean there is a shortage of inventory, which may mean the company may miss a sale due to an/


FINANCIAL RATIOS ANALYSIS Dr. Ahmad Subagyo www.ahmadsubagyo.com1.

longer time than its competitors (Competitors = 365/7 = 52 days). www.ahmadsubagyo.com18 Davis vs. Peer Group: Question #1 Summary RatioDavisPeers Current Ratio 1.671.80 Quick Ratio.88.94 Avg. Collection Period 21.925 Inventory Turnover (days in inventory) 5.48 (67)7 (52) www.ahmadsubagyo.com19 Are the Firms’ Managers Generating Adequate Operating Profits on the Firm’s Assets?  This question focuses on/


Copyright © 2012 Pearson Prentice Hall. All rights reserved. Chapter 3 Financial Statements and Ratio Analysis.

. Comparison to industry averages is also popular, as in the following example. © 2012 Pearson Prentice Hall. All rights reserved. 3-20 Using Financial Ratios: Types of Ratio Comparisons (cont.) Caldwell Manufacturing ’ s calculated inventory turnover for 2012 and the average inventory turnover were as follows: Inventory turnover, 2012 Caldwell Manufacturing14.8 Industry average 9.7 © 2012 Pearson Prentice Hall. All rights reserved. 3-21 Table 3.5 Financial/


Special Accounts: In brief we would cover the following Bank Reconciliation Trial Balance Capital & Revenue Expenditure Inventory Valuation Bills of Exchange.

Receivable Debtors Collection Period = Months or days in a year Debtors turnover or Accounts receivable Average Monthly or daily Credit sales Fixed Assets Turnover Ratio = Cost of Goods Sold Net Fixed Assets Calculate the following ratios for YE March2009 & 2010 a)Return on Capital Employed (b) Current Ratio © Debt Equity Ratio (d) Fixed Assets Turnover Ratio (e) Inventory Turnover Ratio (f) Earning Per Share Balance Sheets as at 31 st March/


Chapter 18-1 LO 5 Identify and compute ratios used in analyzing a firm’s liquidity, profitability, and solvency. Ratio Analysis Illustration.

,500 ($133,000 + $115,500) / 2 = 8.1 times Cost of Good Sold Average Inventory Inventory Turnover = Liquidity Ratios Chapter 18-9 LO 5 Identify and compute ratios used in analyzing a firm’s liquidity, profitability, and solvency. Ratio Analysis A variant of inventory turnover is the days in inventory. Inventory turnover ratios vary considerably among industries. Liquidity Ratios 365 days / 8.1 times = every 45.1 days $1,011,500 ($133,000/


4 CHAPTER Foundations of Ratio and Financial Analysis.

’s capital requirements(both operating and long-term). activity ratios Short-term (operating) activity ratios Long-term (investment) activity ratios inventory receivables payables Working capital Fixed assets Total assets  Short-term( operating) activity ratios: (1) Inventory Turnover:  Measure the efficiency of the firm’s inventory management.  This ratio is affected by the choice of accounting method. 部分行业存货周转率 Average No. Days of Inventory in Stock= Selected financial information from Macon Resources/


5 - 1 Ratio analysis Du Pont system Effects of improving ratios Limitations of ratio analysis Qualitative factors CHAPTER 5 Analysis of Financial Statements.

199919981997Ind. CR1.85x1.1x2.3x2.7x QR0.67x0.4x0.8x1.0x 5 - 13 What is the inventory turnover ratio vs. the industry average? Inv. turnover= = = 3.34x. COGS Inventories $5,728 $1,716 199919981997Ind. Inv. T.3.34X4.45x4.0x6.1x 5 - 14 Inventory turnover is below industry average. Cajun Made might have old inventory, or its control might be poor. No improvement is currently forecasted. Comments on/


Chapter 2 Analysis of Financial Statements. Financial Ratio Analysis Are our decisions maximizing shareholder wealth?

760 18,320 = 6.16 times What is the firm’s Inventory Turnover? cost of goods sold inventory What is the firm’s Inventory Turnover? 85,300 27,530 = 3.10 times What is the firm’s Inventory Turnover? CyberDragon turns their inventory over 3.1 times per year. The industry average is 3/ x /(1- ) The DuPont Model ROE = x / (1- ) = x /(1- ) = 14.6% Net Profit Total Asset Debt Margin Turnover Ratio Net Income Sales Total Debt Sales Total Assets Total Assets 5,016 112,760 47,523 112,760 81,890 81,890 The DuPont Model


Cost Accounting 12/13/2015rd1. 12/13/20152 Assets Resources ~ owned by or owned to the company such as property with monetary value, cash, inventory,

,000 Tax 20,000 Net Income of Net Profit After tax 25,000 Dividends 10,000 Retained Earnings 15,000 12/13/2015rd39 Inventory turnover ratio Inventory turnover ratio = sales average inventory balance = 300,000/1860 = 161.29 times Measures how many times the company sold and replaced its inventory over a specific period. The average is usually calculated over 2 years. 12/13/2015rd40 Times-Interest-Earned/


Chapter 18 (For report) Ratio Analysis. Ratio analysis expresses the relationship among selected items of financial statement data. A ratio expresses.

creditors such as bankers and suppliers are particularly interested in assessing liquidity. The ratios we can use to determine the enterprise’s short-term debt-paying ability are the current ratio, the acid-test ratio, receivables turnover, and inventory turnover. Common measures of liquidity ratios are Current Ratio Acid test ratio Receivable turnover ratio Inventory turnover ratio 1. CURRENT RATIO The current ratio is a widely used measure for evaluating a company’s liquidity and short/


CHAPTER 3 Analysis of Financial Statements

Comments on current ratio 2003 2002 2001 Ind. Current ratio 2.34x 1.20x 2.30x 2.70x Expected to improve but still below the industry average. Liquidity position is weak. What is the inventory turnover vs. the industry average? Inv. turnover = Sales / Inventories = $7,036 / $1,716 = 4.10x 2003 2002 2001 Ind. Inventory Turnover 4.1x 4.70x 4.8x 6.1x Comments on Inventory Turnover Inventory turnover is below/


CHAPTER 6 Accounting for Merchandising Inventory, Cost of Goods Sold, and the Gross Margin.

in flood $ 26,250 Chapter Objective 7 Use the gross margin percentage and the inventory turnover ratio to evaluate a business Analyzing Financial Statements Two important ratios used to measure merchandiser’s success Analyzing Financial Statements 1 Gross margin percentage Analyzing Financial Statements 2 Inventory turnover Analyzing Financial Statements Gross margin percentage measures average percentage of gross profit generated by one dollar of sales Changes in/


Inventories and Cost of Goods Sold

the screen in its financial statements (in millions): Part II Requirement 1. Calculate to one decimal place the inventory turnover ratio and average days to sell inventory for 2010, 2009, and 2008. The Inventory Turnover Ratio is equal to Cost of Goods sold divided by Average Inventory. For example, in 2010, the Inventory Turnover Ratio of 6.8 is obtained by dividing Cost of Goods sold of $1,502 by Average/


4-1 CHAPTER 4 Analysis of Financial Statements Ratio Analysis Du Pont system Effects of improving ratios Limitations of ratio analysis Qualitative factors.

weak. 4-10 What is the inventory turnover vs. the industry average? 2006E20052004Ind. Inventory Turnover 4.1x4.70x4.8x6.1x Inv. turnover = Sales / Inventories = $7,036 / $1,716 = 4.10x 4-11 Comments on Inventory Turnover Inventory turnover is below industry average. D’Leon might have old inventory, or its control might be poor. No improvement is currently forecasted. 4-12 Fixed assets and total assets turnover ratios vs. the industry average FA/


CHAPTER 4 Analysis of Financial Statements

2.30x 2.70x Quick Ratio 0.84x 0.39x 0.85x 1.00x Expected to improve but still below the industry average. Liquidity position is weak. What is the inventory turnover vs. the industry average? Inv. turnover = Sales / Inventories = $7,036 / $1,716 = 4.10x 2006E 2005 2004 Ind. Inventory Turnover 4.1x 4.70x 4.8x 6.1x Comments on Inventory Turnover Inventory turnover is below industry average. D/


CENTURY 21 ACCOUNTING © Thomson/South-Western LESSON 6-3 Estimating the Inventory.

LESSON 6-3 CENTURY 21 ACCOUNTING © Thomson/South-Western MERCHANDISE INVENTORY TURNOVER The number of times the average amount of merchandise inventory is sold during a specific period of time is called the merchandise inventory turnover ratio A merchandise inventory turnover ratio expresses a relationship between an average inventory & the cost of merchandise sold A low merchandise inventory turnover ratio usually indicates a low return on investment 3 LESSON 6-3 CENTURY 21/


1 CHAPTER 3 Analysis of Financial Statements. 2 Topics in Chapter Ratio analysis Du Pont system Effects of improving ratios Limitations of ratio analysis.

its assets? How much does firm have tied up in assets for each dollar of sales? 16 Inventory Turnover Ratio vs. Industry Average Inv. turnover= = = 4.10. Sales Inventories $7,036 $1,716 2011E20102009Ind. Inv. T.4.14.54.86.1 17 Comments on Inventory Turnover Inventory turnover: Firm might have old inventory, or its control might be poor. No improvement is currently forecasted. Below industry average 18 DSO= = = 45/


Objectives Review the contents of the stockholders’ report and the procedures for consolidating financial statements. Understand who uses financial ratios.

obligations. © 2012 Pearson Prentice Hall. All rights reserved. Ratio Analysis (cont.) Liquidity Ratios The quick ratio for Bartlett Company in 2012 is: The liquidity ratio above provides a better measure than the current ratio only when inventory cannot be easily converted to cash. © 2012 Pearson Prentice Hall. All rights reserved. Ratio Analysis (cont.) Activity Ratios: Inventory turnover = Cost of goods sold ÷ Inventory Applying this relationship to Bartlett Company in 2012 yields/


Financial Ratios and Firm Performance

Ratio Industry Average Current Ratio 2.200 Quick Ratio (or Acid Test Ratio) 1.500 Cash Ratio 0.135 Debt Ratio 0.430 Cash Coverage 10.600 Days’ Sales in Receivables 29.000 Total Asset Turnover 2.800 Inventory Turnover 20.100 Days’ Sales in Inventory 11.500 Receivables Turnover/ have much of a problem. Asset management: Tri-Mark’s asset turnover ratios are all below the average. It needs to tighten up collections and manage its inventory more efficiently. Profitability: Tri-Mark has a good control on cost of/


4-1 Lecture 4-350 CHAPTER 4 Analysis of Financial Statements Ratio Analysis Usefulness of ratios. Limitations of ratio analysis.

the FA turnover and TA turnover ratios 200320022001Ind. FA TO8.66.410.07.0 TA TO2.02.12.32.6 FA turnover projected to exceed the industry average. TA turnover below the industry average. Caused by excessive currents assets (A/R and Inv). 4-16 Lecture 4-350 What is the inventory turnover vs. the industry average? 200320022001Ind. Inventory Turnover 4.14.704.86.1 Inv. turnover = Sales / Inventories = $7,036/


Copyright © 2012 Pearson Education Chapter 3 Financial Statements and Ratio Analysis.

group of competitors that it wishes to emulate. Comparison to industry averages is also popular, as in the following example. © 2012 Pearson Education 3-15 Using Financial Ratios: Types of Ratio Comparisons (cont.) Caldwell Manufacturing ’ s calculated inventory turnover for 2012 and the average inventory turnover were as follows: Inventory turnover, 2012 Caldwell Manufacturing14.8 Industry average 9.7 © 2012 Pearson Education 3-16 Table 3.5 Financial/


Free Cash Flow Analysis. Table of Content Income statement, Balance sheet & Cash Flow statement Free cash Flow Analyses Ratio Analysis Financial Planning.

CR and QR 2005E20042003Ind. CR2.58x1.46x2.3x2.7x QR0.93x0.5x0.8x1.0x What is the inventory turnover ratio as compared to the industry average? Inv. turnover= = = 4.10x. Sales Inventories $7,036 $1,716 2005E20042003Ind. Inv. T.4.1x4.5x4.8x6.1x Inventory turnover is below industry average. Firm might have old inventory, or its control might be poor. No improvement is currently forecasted. Comments on/


1 Corporate performance analysis Financial ratio analysis and rating Helena Sůvová Guest lecture for the Czech University of Agriculture Course: Corporate.

net credit sales/avrg accounts receivable (60) receivable collection period = 365/accounts receivable turnover (60)receivable collection period = 365/accounts receivable turnover (60) inventory turnover = cost of goods sold/ avrg inventoryinventory turnover = cost of goods sold/ avrg inventory inventory collection period = 365/inventory turnover ratio (60)inventory collection period = 365/inventory turnover ratio (60) fixed assets turover = sales/ (net) fixed assetsfixed assets turover = sales/ (net) fixed/


Financial/Ratio Analysis HCAD 5390. Basic Financial Reports n Balance Sheet - Estimates the firm’s worth on a given date; built on the accounting equation:

effectively it is putting its resources to work. Average Inventory Turnover Ratio - Tells the average number of times the firm’s inventory is “turned over” or sold out during the accounting period. Average Inventory = Cost of Goods Sold = $1,290.117 = 2.05 times Turnover Ratio Average Inventory* $630,600 a year *Average Inventory = Beginning Inventory + Ending Inventory 2 Twelve Key Ratios Operating Ratios - Evaluate the firm’s overall performance and show how/


FINANCIAL PERFORMANCE ACCOUNTING RATIOS. Accounting Ratio Analysis Information contained in financial statements is of major significant to internal and.

capital + Reserves (R.E) Efficiency Ratio Inventory turnover Cost of goods sold / Average inventory In general a high inventory turnover ratio is better. It shows good inventory management. A very high ratio calls for careful analysis, as it may mean very low level of inventory A very low ratio signifies excessive inventory. Firms should have neither too high nor too low inventory turnover. Efficiency Ratio Contd.. Avg. No. of days inventory is sold (Stock held / cost/


Copyright © 2016 by McGraw-Hill Education Chapter 7 Inventory and Cost of Goods Sold PowerPoint Author: Brandy Mackintosh, CA.

in 2012 (67.6 days to sell). Both companies use the same inventory costing method (FIFO). The inventory turnover ratio reflects how many times average inventory was acquired and sold during the year. The inventory turnover ratio for Polaris Industries has been consistent throughout 2010 to 2012. Polaris is performing better than Arctic Cat, where the inventory turnover is 5.4 times per year or every 67.6 days. 7/


Financial Analysis Chapter 3. Chapter 3 - Outline Financial Analysis 4 Categories of Financial Ratios Importance of Ratios Inflation and its Impact on.

4 Categories of Ratios Profitability Ratios Asset Utilization Ratios Liquidity Ratios Debt Utilization Ratios Classification System We will separate 13 significant ratios into four primary categories. A. Profitability Ratios. 1. Profit margin. 2. Return on assets (investment). 3. Return on equity. B. Asset utilization ratios. 4. Receivable turnover. 5. Average collection period. 6. Inventory turnover. 7. Fixed asset turnover. 8. Total asset turnover. C. Liquidity ratios. 9. Current ratio. 10. Quick ratio. D/


Ratio Analysis What is ratio analysis? Ratio analysis is the use of various ratios to analyze financial statements. What is a ratio? Basically, it is.

cash. The inventory turnover ratio The inventory turnover ratio is obtained by dividing the Total Sales of a company by its Total Inventory. The ratio is regarded as a test of Efficiency and indicates the “quickness” with which the company is able to move its merchandise. Inventory turnover ratio example The formula: Inventory Turnover Ratio = Net Sales / Inventory An example: Net Sales = $727,116 (from Income Statement) Total Inventory = $156,822 (from Balance sheet ) Inventory Turnover Ratio = $727,116/


Financial Ratios Clicker Quiz. What is this ratio? Market Price Per Share Earnings Per Share A. Inventory Turnover B. Accounts Receivable Turnover C.

control Creditors would like it less than 1 since the company is financed more by owners than creditors What is this ratio? Cost of Goods Sold Average inventory A. Inventory Turnover B. Accounts Receivable Turnover C. Price Earnings Ratio D. Debt to Equity Inventory Turnover How many times inventory has been bought and sold during the year. 4.0 Times would mean it is sold once a quarter. 12/


1 Chapter 9 Analysis of Financial Statements. 2 VII. Ratio Analysis  Builds on firms financial statements  Easy to understand  Used by both equity.

liabilities  $698.2 / $279.9 = 2.49 8 Quick Ratio  (Current assets - inventory) / current liabilities  ($698.2 - $373.9) / $279.9 = 1.16 VII. Ratio Analysis I.Activity Ratios – How fast a company is turning its assets into cash 1. Inventory Turnover a) Speed to which inventory is sold (1) Sales (Cost of Goods Sold)/ average inventory 2. Receivables Turnover a) Speed with which accounts receivables are collected (1/


®2002 Prentice Hall Publishing 1 Chapter 12 Financial Ratio Analysis.

payable period –Credit check ®2002 Prentice Hall Publishing 11 Liquidity of Inventories Inventory turnover ratioInventory turnover ratio –Higher the inventory turnover More efficient the inventory managementMore efficient the inventory management Frequent stockouts?Frequent stockouts? Too many small orders?Too many small orders? –Turnover ratio is relatively low Slow-moving inventorySlow-moving inventory ObsolescenceObsolescence –Investigate perceived inefficiency ®2002 Prentice Hall Publishing 12 Debt/


3-1 CHAPTER 3 Analysis of Financial Statements. 3-2 Balance Sheet: Assets Cash A/R Inventories Total CA Gross FA Less: Dep. Net FA Total Assets 2002 7,282.

. 3-11 What is the inventory turnover vs. the industry average? 200320022001Ind. Inventory Turnover 4.1x???4.8x6.1x Inv. turnover = Sales / Inventories = $7,035600 / $1,716,480 = 4.10x 3-12 Comments on Inventory Turnover Inventory turnover is below industry average. The company might have old inventory, or its control might be poor. No improvement is currently forecasted. 3-13 Fixed asset and total asset turnover ratios vs. the industry average FA/


Copyright © 2010 Pearson Prentice Hall. All rights reserved. Chapter 14 Financial Ratios and Firm Performance.

that if it needs to borrow long-term debt it should not have much of a problem. Asset management: Tri-Mark’s asset turnover ratios are all below the average. It needs to tighten up collections and manage its inventory more efficiently. Profitability: Tri-Mark has a good control on cost of goods sold. Its net profit margin is better than that of/


MT217 Seminar 3. Balance Sheet: Assets Cash A/R Inventories Total CA Gross FA Less: Dep. Net FA Total Assets 2005 7,282 632,160 1,287,360 1,926,802 1,202,950.

is weak. What is the inventory turnover vs. the industry average? 2006E20052004Ind. Inventory Turnover 4.1x4.70x4.8x6.1x Inv. turnover = Sales / Inventories = $7,036 / $1,716 = 4.10x Comments on Inventory Turnover Inventory turnover is below industry average. D’Leon might have old inventory, or its control might be poor. No improvement is currently forecasted. Fixed assets and total assets turnover ratios vs. the industry average FA turnover= Sales / Net fixed assets = $7/


3 - 1 Copyright © 2002 Harcourt, Inc.All rights reserved. Ratio analysis Du Pont system Effects of improving ratios Limitations of ratio analysis Qualitative.

weak. Comments on CR and QR 2002E20012000Ind. CR1.85x1.1x2.3x2.7x QR0.67x0.4x0.8x1.0x 3 - 11 Copyright © 2002 Harcourt, Inc.All rights reserved. What is the inventory turnover ratio as compared to the industry average? Inv. turnover= = = 4.10x. Sales Inventories $7,036 $1,716 2002E20012000Ind. Inv. T.4.1x4.5x4.8x6.1x 3 - 12 Copyright © 2002 Harcourt, Inc.All rights reserved/


INVENTORY AND OVERHEAD

: Retail Method; Gross Profit Method; Inventory Turnover; Distribution of Overhead Calculate the cost ratio and ending inventory at cost for the retail method. Calculate the estimated inventory using the gross profit method. Explain and calculate inventory turnover. Explain overhead; allocate overhead according to floor space and sales. 18- Inventory Systems Perpetual Inventory System – Keeps a running account of inventory by updating with each transaction. Periodic Inventory System – Relies on a physical/


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