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Inventory turnover and days sales in receivables

Computing inventory turnover and days sales in receivables:

Low's companies
income statement
year ended January 31, 2011

Net sales 40.6
cost of goods sold 22.5
interest expenses 0.4
all other expenses 6.9
Net income 10.8

Low's companies
balance sheet
January 31, 2011 and 2010

Assets 2011 2010 Liabilities 2011 2010

cash 2.2 1.2 total current liabilities 24.0 13.2
short term investment 24.0 13.0 long term liabilities 13.7 11.6
accounts receivable 7.5 5.4 total liabilities 37.7 24.8
inventory 7.3 7.2 Stockholder Equity
other current assets 9.0 1.5 common stock 10.0 10.0
total current assets 50.0 28.3 retained earnings 35.3 21.5
all other assets 33.0 28.0 total equity 45.3 31.5
Total assets 83.0 56.3 total liabilities and equity 83.0 56.3

Requirement:
1. compute the rate of inventory turnover for 2011 and compute days' sales in average receivables during 2011. (Round dollar amounts to three decimal places).

Solution Preview

Inventory turnover = Cost of goods sold/average inventory
Cost of goods sold = ...

Solution Summary

The solution explains the calculation of inventory turnover and days sales in receivables.

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