A recent annual report of Kraft Foods Group,Inc., reveals the following informat

Question

A recent annual report of Kraft Foods Group,Inc., reveals the following information (dollar amounts are stated in millions):

a. Compute Kraft Food Group, Inc.'s inventory turnover for the year (round to nearest tenth).

b. Compute the number of days required to sell its average inventory (round to the nearest day).

c. What is the length of Kraft's operating cycle?

d. What comparative information would you want to be able to evaluate Kraft's operating cycle figure?

Cost of goods sold $12,499 Inventory (beginning of year) 1,943 Inventory (end of year) 1,928 Average time required to collect accounts receivable 18 days

Explanation / Answer

a) Inventory turnover = COGS /Average inventory

                                     = 12499 /[ (1943+1928)/ 2]

                                    = 12499 / [3871/2]

                                     = 12499 / 1935.5

                                     = 6.5

b) Number of days = 365 / 6.5

                                  = 56 days

c) length of operating cycle = days sales of inventory + days sales outstanding

                                               = 56 + 18

                                               = 74 days .

d) operating cycle of industry is required to compare figures.

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