Question

Question: 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

Comment on and interpret your findings from parts 1 and 2. Assume an industry average for inventory turnover of 15.

Short answer

Answer

Company	Inventory turnover ratio	Day’s sales in inventory
Apple Company	Efficient	Efficient
Microsoft Company	Inefficient	Inefficient

Step-by-step solution

 Step 1: Definition of Industry Average

The benchmark that the company uses to measure its performance compared to other companies in the industry is known as the industry average.

Interpretation of Inventory turnover ratios

The inventory turnover ratio of Apple company is much higher than the industry average, reflecting that the business entity is efficient in generating sales. While the inventory turnover ratios of Microsoft company for both years are lower than the industry average, reflecting that the company cannot generate sales.

Interpretation of Days sales in inventory

Apple can sell all its inventory within seven days, reflecting a good position. While Microsoft can sell all of its inventory within 30 to 35 days, it reflects that the company is not operating efficiently compared to Apple.