Question

Question: BTN 5-2 Comparative figures for Apple and Microsoft follow

\( million	Apple			Microsoft
	Current year	One year Prior	Two years prior	Current year	One year Prior	Two years prior
Inventory	\)2,349	\(2,111	\)1,764	\(2,902	\)2,660	$1,938
Cost of Sales	140,089	112,258	106,606	33,038	27,078	20,385

Required

1. Compute inventory turnover for each company for the most recent two years shown.

Short answer

Answer

Company	Current Year	One Year Prior
Apple Company	62.82 times	57.94 times
Microsoft Company	11.87 times	11.77 times

Step-by-step solution

Definition of Financial Analysis

Financial analysis can be defined as assessing all the financial transactions of the business entity and their financial statements to evaluate their performance.

Calculation of Inventory turnover Ratio of Apple Company

Current year:

$$\begin{gathered} \text{inventoryturnoverratio=}\frac{C\mathrm{os}\text{tofgoodsolids}}{Averageinventory} \\ \text{=}\frac{\$140.089}{{\displaystyle \frac{\$2,349+\$2,111}{2}}} \\ \text{=}\frac{\$140.089}{\$2,230} \\ \text{=62.82times} \end{gathered}$$

One year Prior:

localid="1649918405788" $$\begin{gathered} \text{inventoryturnoverratio=}\frac{C\mathrm{os}\text{tofgoodsolids}}{Averageinventory} \\ \text{=}\frac{\$112,258}{{\displaystyle \frac{\$2,111+\$1,764}{2}}} \\ \text{=}\frac{\$112,258}{\$1,937.5} \\ \text{=57.94times} \end{gathered}$$

Calculation of Inventory turnover Ratio of Microsoft Company

Current year:

$$\begin{gathered} \text{inventoryturnoverratio=}\frac{C\mathrm{os}\text{tofgoodsolids}}{Averageinventory} \\ \text{=}\frac{\$33,038}{{\displaystyle \frac{\$2,902+\$2,660}{2}}} \\ \text{=}\frac{\$33,038}{\$2,781} \\ \text{=11.87times} \end{gathered}$$

One year Prior:

$$\begin{gathered} \text{inventoryturnoverratio=}\frac{C\mathrm{os}\text{tofgoodsolids}}{Averageinventory} \\ \text{=}\frac{\$27,078}{{\displaystyle \frac{\$2,660+\$1,938}{2}}} \\ \text{=}\frac{\$27,078}{\$2,299} \\ \text{=11.77times} \end{gathered}$$