Question

Cullumber Corp. has a gross profit margin of 40.00 percent, sales of $39,000,000, and inventory of $15,600,000. What is its inventory turnover ratio? (Round answer to 2 decimal places, e.g. 15.25.)

Answer 1

Given:

Gross profit margin = 40%

Sales = $39,000,000

Inventory = $15,600,000

Step 1 - Calculate Gross profit

Gross profit margin = Gross profit / Sales

0.40 = Gross profit / 39,000,000

0.40 * 39,000,000 = Gross profit

15,600,000 = Gross profit

Step 2 - Calculate Cost of goods sold (COGS)

We know that,

Sales - COGS = Gross profit

Substituting the values in this formula we get,

39,000,000 - COGS = 15,600,000

39,000,000 - 15,600,000 = COGS

23,400,000 = COGS

Step 3 - Calculate Inventory turnover ratio

Inventory turnover ratio = COGS / Average inventory

= 23,400,000 / 15,600,000

= 1.5

Therefore, Inventory turnover ratio is 1.5