Question

Inventory Turnover and days’ sales in inventory

Kracker Corp., Foodstuff, Inc., and Winston Stores, Inc. are three grocery chains in the United States. Inventory management is an important aspect of the grocery retail business. Recent balance sheets for these three companies indicated the following merchandise inventory (in millions) information:

	Kracker Corp.	Foodstuff Inc.	Winston Stores
Cost of merchandise sold	$32,850.0	$34,675.0	$35,040.0
Inventory, beginning of year	1,908.9	2,131.8	1,582.1
Inventory, end of year	1,871.1	2,048.2	1,489.9

a. & b. Determine the inventory turnover and the number of days’ sales in inventory (use 365 days and round to the nearest day) for the three companies. Round all interim calculations to one decimal place. For days' sales in inventory, round final answers to the nearest day, and for inventory turnover, round to one decimal place.

Company names	Inventory Turnover	Days' Sales in Inventory
Kracker		days
Foodstuff		days
Winston Stores		days

c. The inventory turnover ratios and days’ sales in inventory are similar for Kracker and Foodstuff. Winston Stores has a higher inventory turnover and a lower days’ sales in inventory than Kracker and Foodstuff. These results suggest that Kracker and Foodstuff are less efficient than Winston Stores in managing inventory.

d. If Kracker had Winston Stores’ days’ sales in inventory, how much additional cash flow would have been generated from the smaller inventory relative to its actual average inventory position? Round interim calculations to one decimal place and your final answer to the nearest million.
$ million

Answer 1

a&b
		Kracker	Foodstuff	Winston
		Corp.	Inc.	Stores
	Cost of merchandise sold	$32,850.00	$34,675.00	$35,040.00
	Inventory, beginning of year	1,908.90	2,131.80	1,582.10
	Inventory, end of year	1,871.10	2,048.20	1,489.90
	Average Inventory (beginning Inventory+Ending Inventory)/2	1890	2090	1536
	Inventory turnover(cost of good sold/Average Inventory)	17.4	16.6	22.8
	Days sales in Inventory (365/Inventory turnover)	21	22	16	days
c	These results suggest that Kracker and Foodstuff are less efficient than Winston Stores in managing inventory.
d	New Inventory Turnover fr Kracker would be	22.81
	Additional cashflow	10206