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Fundamentals of Financial Manageme...
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REGRESSION AND INVENTORIES jasper Furnishings has $300 million in sales. The company expects that its sales will increase 12% this year. Jasper’s CFO uses a simple linear regression to forecast the company’s inventory level for a given level of projected sales. On the basis of recent history, the estimated relationship between inventories and sales (in millions of dollars) is as follows:
Given the estimated sales forecast and the estimated relationship between inventories and sales, what are your forecasts of the company’s year-end inventory level and its inventory turnover ratio?
To compute: The sales forecast, year ended inventory and the inventory turnover ratio.
Introduction:
Sales Forecast:
Sales forecast is the important point that arises while making the future plans. The management generally takes 5 years financial records and then studies it and decides the amount of turnover for the current and upcoming years.
Given information:
Sales are $300 million.
Increase in sales by 12%
Formula to calculate the sales forecast is,
Substitute $300 for sales and 12% for increase in sales in the above equation.
Formula to calculate inventory given in question is,
Substitute $336,000,000 for sales in the above equation
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