Inventory Turnover : Cost Of Goods Sold

950 WordsDec 4, 20154 Pages
Inventory Turnover = Cost of Goods Sold / Avg. Inventory Measure of Efficiency of inventory management 2015 2014 Inventory Turnover = 387,000 / 110,000 = 3.518 times Inventory Turnover = 275,000 / 80,000 = 3.4735 times The result of inventory turnover for Smith Enterprises being so small tends to be restricted sales volume. With this, the company requires a larger investment in inventory. Days ' Sales in Inventory = Ending Inventory / Cost of Goods Sold x 365 Measure of Liquidity in inventory 2015 2014 Days ' Sales in Inventory = 110,000 / 387,000 x 365 = 103.75 days / 104 days Days ' Sales in Inventory = 80,000 / 275,000 x 365 = 106.16 days/ 106days Smith Enterprises Days’ Sales in Inventory is expressing that their inventory is not being demanded by customers, and estimates that inventory will be converted into receivable or cash in approximately 104-106days. Solvency Financial Ratios- Debt Ratio = Total Liabilties / Total Assets Measure of Creditor financing and leverage 2015 2014 Debt Ratio = 170,000 / 368,000 = .4619 = 46% Debt Ratio = 180,000 / 360,000 = .5 = 50% The debt ratio for Smith Enterprises indicates that approximately 50% of the company is debt. Although the other 50% is assets, the company should consider a different financial approach. Equity Ratio = Total Equity / Total Assets Measure of owner financing 2015 2014 Equity Ratio = 198,000 / 368,000 = .53804 Equity Ratio = 180,000 / 360,000 = .5 Smith Enterprises equity ratio is low,

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