Analyze and compare Costco, Wal-Mart, and Nordstrom The general merchandise retail industry has a number of segments represented by the following companies: Company Name Merchandise Concept Costco Wholesale Corporation (COST) Membership warehouse Wal-Mart Stores, Inc. (WMT) Discount general merchandise Nordstrom, Inc. (JWN) Fashion department store For a recent war, the following cost of goods sold and beginning and ending inventories are provided from corporate annual reports (in millions) for these three companies: a. Determine the inventory turnover ratio for all three companies. Round all calculations to one decimal place. b. Determine the number of days’ sales in inventory for all three companies. Use 365 days and round all calculations to one decimal place. c. Interpret these results based on each company’s merchandising concept.

Inventory turnover ratio: Inventory turnover ratio is used to determine the number of times inventory used or sold during the particular accounting period. The formula to calculate the inventory turnover ratio is as follows:

Inventory turnover=Cost of goods soldAverage inventory

To determine: the inventory turnover for Company C, Company W and Company N

Explanation of Solution

The inventory turnover ratio for Company C is calculated as follows:

Inventory turnover=Cost of goods soldAverage inventory=$102,9018,938.5(1)=11.5 Times

Working notes:

The average inventory is calculated as follows:

Average inventory=(Inventory, beginning of the year + Inventory, end of the year)2=(8,908+8,969)2= 8,938.5 (1)

The inventory turnover ratio for Company W is calculated as follows:

Inventory turnover=Cost of goods soldAverage inventory=$360,98444,805(2)=8 Times

Working notes:

The average inventory is calculated as follows:

Average�

Answer 6

(b)

To determine

Days’ sales in inventory: Days’ sales in inventory are used to determine number of days a particular company takes to make sales of the inventory available with them. The formula to calculate the days’ sales in inventory ratio is as follows:

Days' sales in inventory=Days in accounting periodInventory turnover

To determine: the Days’ sales in inventory ratio for Company C, Company W and Company N.

Answer 7

(c)

To determine

Inventory turnover ratio: Inventory turnover ratio is used to determine the number of times inventory used or sold during the particular accounting period. The formula to calculate the inventory turnover ratio is as follows:

Inventory turnover=Cost of goods soldAverage inventory

Days’ sales in inventory: Days’ sales in inventory are used to determine number of days a particular company takes to make sales of the inventory available with them. The formula to calculate the days’ sales in inventory ratio is as follows:

Days' sales in inventory=Days in accounting periodInventory turnover

To interpret: the above calculated ratios.

Company Name	Merchandise Concept
Costco Wholesale Corporation (COST)	Membership warehouse
Wal-Mart Stores, Inc. (WMT)	Discount general merchandise
Nordstrom, Inc. (JWN)	Fashion department store

Corporate Financial Accounting

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Corporate Financial Accounting

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