Response to the following problem:
Calculating and interpreting inventory turnover ratios. Dell produces computers and related equipment on a made-to-order basis for consumers and business. Sun Microsystems design and manufactures higher-end computers that function as servers and for use in computer-aided design. Sun Microsystems sells primarily to business. It also provides services to business customers in addition to product sales of computers. Selected data for each firm for 2007-2009 appear in Exhibit. (Dells fiscal year-end is in January; Suns fiscal year-end is in June. As of the writing of this text, an acquisition of Sun by Oracle is pending.)
Exhibit :
Selected Data for Dell and Sun Microsystems (amounts in millions) 2009 2008 2007
Dell Cost of goods Sold $49,375 $48,855 $47,433
Average Inventories 1,024 920 618
Change in sales from previous year 1.10% 3.00% 4.10%
Sun Microsystems Cost of goods Sold $5,948 $6,639 $6,778
Average Inventories 623 602 532
Change in sales from previous year -10.40% -2.10% 3.70%
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.