CALCULATING AND INTERPRETING INVENTORY TURNOVER RATIOS. Dell produces computers and related equipment on a made-to-order basis for consumers and businesses. Sun Microsystems designs and manufactures higher-end com- puters that function as servers and for use in computer-aided design. Sun Microsystems sells primarily to businesses. It also provides services to business customers in addition to prod- uct sales of computers. Selected data for each firm for 2007-2009 appear in Exhibit 4.23. (Dell's fiscal year-end is in January; Sun's fiscal year-end is in June. As of the writing of this text, an acquisition of Sun by Oracle is pending.)
Required:
a. Calculate the inventory turnover ratio for each firm for 2007-2009.
b. Suggest reasons for the differences in the inventory turnover ratios of these two firms.
c. Suggest reasons for the changes in the inventory turnover ratios during the three-year period.
Text Book: Financial Reporting, Financial Statement Analysis and Valuation: A Strategic Perspective By James Wahlen, Stephen Baginski, Mark Bradshaw.