Question

BTN 5-9 Following are key figures (in millions of Korean won) for Samsung (Samsung.com), which is a leading manufacturer of consumer electronics products.

W in millions	Current year	One year prior	Two-year prior
Inventory	W18,811,794	W17,317,504	W19,134,868
Cost of sales	123,482,118	128,278,800	137,696,309

Required

Use these data and those from BTN 5-2 to compute (a) inventory turnover and (b) days’ sales in inventory for the most recent two years shown for Samsung, Apple, and Microsoft.

Short answer

Inventory turnover ratio:

Year	Apple	Microsoft	Samsung
Current year	62.82 times	11.87 times	6.83 times
One year prior	57.94 times	11.77 times	7.03 times

Days’ Sales in Inventory:

Year	Apple	Microsoft	Samsung
Current	6.12 days	32.06 days	55.60 days
One year prior	6.86 days	35.85 days	49.27 days

Step-by-step solution

Definition of Inventory Turnover

Inventory turnover can be defined as the financial ratio reflecting the number of times that a business entity sells all of its inventory.

Calculation of Financial Ratios Apple Company

Inventory turnover ratios:

Current year:

$\begin{array}{rcl}\mathrm{Inventoryturnoverratio}& =& \frac{\mathrm{Costofgoodssold}}{\mathrm{AverageInventory}}\\ & =& \frac{\$140,089}{\frac{\$2,349+\$2,111}{2}}\\ & =& \frac{\$140,089}{\$2,230}\\ & =& 62.82\mathrm{times}\end{array}$

One year Prior:

$\begin{array}{rcl}\mathrm{Inventoryturnoverratio}& =& \frac{\mathrm{Costofgoodssold}}{\mathrm{AverageInventory}}\\ & =& \frac{\$112,258}{\frac{\$2,111+\$1,764}{2}}\\ & =& \frac{\$112,258}{\$1,937.5}\\ & =& 57.94\mathrm{times}\end{array}$

Days’ Sales in Inventory

Current year:

$\begin{array}{rcl}\mathrm{Days}\text{'}\mathrm{salesininventory}& =& \frac{\mathrm{EndingInventory}}{\mathrm{Costofgoodssold}}\times 365\\ & =& \frac{\$2,349}{\$140,089}\times 365\\ & =& 6.12\mathrm{days}\end{array}$

One year Prior:

$\begin{array}{rcl}\mathrm{Days}\text{'}\mathrm{salesininventory}& =& \frac{\mathrm{EndingInventory}}{\mathrm{Costofgoodssold}}\times 365\\ & =& \frac{\$2,111}{\$112,258}\times 365\\ & =& 6.86\mathrm{days}\end{array}$

Calculation of Financial Ratios for Microsoft Company

Inventory turnover ratio:

Current year:

$\begin{array}{rcl}\mathrm{Inventoryturnoverratio}& =& \frac{\mathrm{Costofgoodssold}}{\mathrm{AverageInventory}}\\ & =& \frac{\$33,038}{\frac{\$2,902+\$2,660}{2}}\\ & =& \frac{\$33,038}{\$2,781}\\ & =& 11.87\mathrm{times}\end{array}$

One year Prior:

$\begin{array}{rcl}\mathrm{Inventoryturnoverratio}& =& \frac{\mathrm{Costofgoodssold}}{\mathrm{AverageInventory}}\\ & =& \frac{\$27,078}{\frac{\$2,660+\$1,938}{2}}\\ & =& \frac{\$27,078}{\$2,299}\\ & =& 11.77\mathrm{times}\end{array}$

Days’ Sales in Inventory

Current year:

$\begin{array}{rcl}\mathrm{Days}\text{'}\mathrm{salesininventory}& =& \frac{\mathrm{EndingInventory}}{\mathrm{Costofgoodssold}}\times 365\\ & =& \frac{\$2,902}{\$33,038}\times 365\\ & =& 32.06\mathrm{days}\end{array}$

One year Prior:

$\begin{array}{rcl}\mathrm{Days}\text{'}\mathrm{salesininventory}& =& \frac{\mathrm{EndingInventory}}{\mathrm{Costofgoodssold}}\times 365\\ & =& \frac{\$2,660}{\$27,078}\times 365\\ & =& 35.85\mathrm{days}\end{array}$

Calculation of Financial Ratios for Samsung Company

Inventory Turnover ratio:

Current year:

$\begin{array}{rcl}\mathrm{Inventoryturnoverratio}& =& \frac{\mathrm{Costofgoodssold}}{\mathrm{AverageInventory}}\\ & =& \frac{\mathrm{W}123,482,118}{\frac{\mathrm{W}18,811,794+\mathrm{W}17,317,504}{2}}\\ & =& \frac{\mathrm{W}123,482,118}{\mathrm{W}18,064,649}\\ & =& 6.83\mathrm{times}\end{array}$

One year Prior:

$\begin{array}{rcl}\mathrm{Inventoryturnoverratio}& =& \frac{\mathrm{Costofgoodssold}}{\mathrm{AverageInventory}}\\ & =& \frac{\mathrm{W}128,278,800}{\frac{\mathrm{W}17,317,504+\mathrm{W}19,134,868}{2}}\\ & =& \frac{\mathrm{W}128,278,800}{\mathrm{W}18,226,186}\\ & =& 7.03\mathrm{times}\end{array}$

Days’ Sales in Inventory

Current year:

$\begin{array}{rcl}\mathrm{Days}\text{'}\mathrm{salesininventory}& =& \frac{\mathrm{EndingInventory}}{\mathrm{Costofgoodssold}}\times 365\\ & =& \frac{\mathrm{W}18,811,794}{\mathrm{W}123,482,118}\times 365\\ & =& 55.60\mathrm{days}\end{array}$

One year Prior:

$\begin{array}{rcl}\mathrm{Days}\text{'}\mathrm{salesininventory}& =& \frac{\mathrm{EndingInventory}}{\mathrm{Costofgoodssold}}\times 365\\ & =& \frac{\mathrm{W}17,317,504}{\mathrm{W}128,278,800}\times 365\\ & =& 49.27\mathrm{days}\end{array}$