CFA Practice Question
An analyst has gathered the following information about a company:
Cash: 100
Accounts Receivable: 750
Marketable Securities: 300
Inventory: 850
Property, Plant & Equip: 900
Accumulated Depreciation: (150)
Total Assets: 2750
Accounts Payable: 300
Short-Term Debt: 130
Long-Term Debt: 700
Common Equity: 1000
Retained Earnings: 620
Total Liab. and Stockholder's Equity: 2750
Sales: 1500
COGS: 1100
Gross Profit: 400
SG&A: 150
Operating Profit: 250
Interest Expense: 25
Taxes: 75
Net Income: 150
Balance Sheet
Assets
Cash: 100
Accounts Receivable: 750
Marketable Securities: 300
Inventory: 850
Property, Plant & Equip: 900
Accumulated Depreciation: (150)
Total Assets: 2750
Liabilities and Equity
Accounts Payable: 300
Short-Term Debt: 130
Long-Term Debt: 700
Common Equity: 1000
Retained Earnings: 620
Total Liab. and Stockholder's Equity: 2750
Income Statement
Sales: 1500
COGS: 1100
Gross Profit: 400
SG&A: 150
Operating Profit: 250
Interest Expense: 25
Taxes: 75
Net Income: 150
What is the inventory turnover ratio?
A. 1.29
B. 1.59
C. 0.77
Explanation: Inventory turnover = 1100(COGS)/850(inventory) = 1.29
User Contributed Comments 4
| User | Comment |
|---|---|
| gaur | What happened to the concept of "AVERAGE" inventory. Shouldn't average inventory be End of year balance = 850 + Begining Inventory balance (850 + 1100(COGS)/2)=1900. Thus the Inventory Turnover Ratio should be 1100/1900 = 0.58. Or for convenience sake we should assume that the balances provided for Balance sheet are averages... |
| gaur | Correction to above: Begining inventory = 850+1100 = 1950 thus average inventory = 850+1950/2 = 1900 |
| novica | guar, you need to study some more. |
| endurance | we dont have the ending inventory, thus COGS/Inv = 1100/850 = 1,29 |