Question

In its 2015 annual report, Gap Inc. reported inventory of \(1,889 million on January 31, 2015, and \)1,928 million on February 1, 2014, cost of goods sold of \(10,146 million for 2015, and net sales of \)16,435 million. Compute Gap’s inventory turnover and the average days to sell inventory for the fiscal year 2015

Short answer

The inventory turnover equals 5.32 times, and the average days to sell inventory equals 68.61 days.

Step-by-step solution

Inventory turnover is calculated as follows:

$\begin{array}{rcl}\mathrm{Inventory}\mathrm{turnover}& =& \frac{\mathrm{Cost}\mathrm{of}\mathrm{goods}\mathrm{sold}}{\mathrm{Average}\mathrm{Inventory}}\\ & =& \frac{\$10,146}{{\displaystyle \frac{\$1,889+\$1,928}{2}}}\\ & =& 5.32\mathrm{Times}\end{array}$

Average days to sell inventory is calculated as follows:

$\begin{array}{rcl}\mathrm{Average}\mathrm{days}\mathrm{to}\mathrm{sell}\mathrm{inventory}& =& \frac{365}{\mathrm{Inventory}\mathrm{Turnover}}\\ & =& \frac{365}{5.32}\\ & =& 68.61\mathrm{days}\end{array}$

Thus, inventory turnover is 5.32 times, and the average days to sell inventory is 68.61 days.