Question

Accounts Receivable and Inventory Turnover

The following data (in millions) were adapted from recent financial statements of Apple Inc (AAPL).

Year 2

Year 1

Sales

$233,715

$182,795

Cost of goods sold

140,089

112,258

Operating income

71,230

52,503

Average accounts receivable

33,713

27,816

Average inventory

2,230

1,938

1. Compute the accounts receivable turnover for Years 1 and 2. Round to one decimal place.

Accounts Receivable Turnover

Year 2

Year 1

2. Compute the number of days' sales in receivables for Years 1 and 2. Assume there are 365 days in a year, and round to nearest day.

Number of Days' Sales

in Receivables

Year 2

days

Year 1

days

3. Compute the inventory turnover for Years 1 and 2. Round to one decimal place.

Inventory Turnover

Year 2

Year 1

4. Compute the number of days' sales in inventory for Years 1 and 2. Assume there are 365 days in a year, and round to nearest day.

Number of Days' Sales

in Inventory

Year 2

days

Year 1

days

5. Compute the return on sales for Years 1 and 2. Round to one decimal place.

Return on Sales

Year 2

%

Year 1

%

6. Apple’s accounts receivable turnover in Year 2 has slightly. Days’ sales in receivables has . This is a change. Apple’s inventory turnover in Year 2 has slightly. Days’ sales in inventory has . Apple’s return on sales in Year 2 has . This a change.

Answer 1

1. Accounts receivable turnover ratio

Accounts receivable turnover ratio = Sales / Average Account Receivables

Year 1

= $182,795 / 27,816

= 6.6

Year 2

= $233,715 / 33,713

= 6.9

2. Number of days' sales in receivables

Number of days' sales in receivables = 365 Days / Accounts receivable turnover ratio

Year 1

= 365 / 6.9

= 55 Days

Year 2

= 365 / 6.9

= 53 Days

3. Inventory turnover

Inventory turnover = Cost of goods sold /Average Inventory

Year 1

= 112,258 / 1,938

= 57.9

Year 2

= 140,089 / 2,230

= 62.8

4.Number of days' sales in inventory

Number of days' sales in inventory = 365 Days / Inventory turnover

Year 1

= 365 / 57.9

= 6 Days

Year 2

= 365 / 62.8

= 6 Days

5. Return on sales

Return on sales = [ Operating Income / Sales ] x 100

Year 1

= [ $52,503 / $182,795 ] x 100

= 28.7%

Year 2

= [ $71,230 / $233,715 ] x 100

= 30.5%