Dell Inc. and Hewlett-Packard Company (HP) are both manufacturers of computer equipment and peripherals. However, the two companies follow two different approaches. Dell follows a build-to-order approach, where the consumer orders the computer from a Web page. The order is then manufactured and shipped to the customer within days of the order. In contrast, HP fol- lows a build-to-stock approach, where the computer is first built for inventory, then sold from inventory to retailers, such as Best Buy. The following financial statement information is provided for Dell and HP for fiscal year 2004 (in millions):
|
|
Dell
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HP
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|
Inventory, end of period
|
$ 459
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$ 7,071
|
|
Inventory, beginning of period
|
327
|
6,065
|
|
Cost of goods sold
|
40,190
|
60,150
|
The two approaches can be seen in the difference between the inventory turnover and number of days' sales in inventory ratio for the two companies.
a. Determine the inventory turnover ratio and number of days' sales in inventory ratio for each company. Round to one decimal place.
b. Interpret the difference between the ratios for the two companies.