E7-13 Analyzing and Interpreting the Inventory Turnover Ratio [LO 7-5] Aegis Ind

Question

E7-13 Analyzing and Interpreting the Inventory Turnover Ratio [LO 7-5] Aegis Industries Inc. is the biggest snowmobile manufacturer in the world. It reported the following amounts in its financial statements (in millions): Net Sales Revenue Cost of Goods Sold Average Inventory 2012 2011 2010 2009 4,000 3,460 S 2,790 S 2,370 3,150 2,720 2,250 1,970 400 350 290 280 Required 1-a. Calculate the inventory turnover ratio for 2012, 2011, and 2010. (Round your answers to 1 declmal place.) Times per Year 2012 2011 2010 Inventory Turnover Ratio 1-b. Calculate the average days to sell inventory for 2012, 2011, and 2010. (Use 365 days in a year. Use rounded "Inventory Turnover Ratio" and round your answers to 1 decimal place.) Days 2012 2011 2010 Average Days to Sell Inventory 2. Is Aegis performing better than its competitor Sabertooth where the inventory turned over is 6.2 times in 2012 (58.9 days to sell). Both companies use the same inventory costing method (FIFO). Yes No

Explanation / Answer

1-a. Times Per Year 2012 2011 2010 COGS 3150 2720 2250 Av.Inventory 400 350 290 Inventory Turnover Ratio= COGS/Av.Inventory Where, Av.Inventory= (Op.Inv.+End.Inv.)/2 Here, Av.inv.is given, we use it directly Inventory Turnover Ratio= 3150/400= 2720/350= 2250/290= 7.88 7.77 7.76 1.b. Av. Days to sell inventory Days 2012 2011 2010 Av. Days to sell= 365/ Inv.T.O.Ratio 365/7.88= 365/7.77= 365/7.76= 46.3 47.0 47.0 2. YES In Aegis, Inventory is converted to sales more no.of times ina year --in all three years ,ITO is more than 7.75, compared to the 6.2 of Sabertooth. Also it takes lesser no.of days to get converted ,46/47 days, as compared to the 58.9 days of Sabertooth.

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