Calculating and Interpreting Inventory Ratios
Response to the following problem:
Captain Geech Boating Company sells fishing boats to fishermen. Its beginning and ending inventories for 2009 are $462 million and $653 million, respectively. It had cost of goods sold of $1,578 million for the year ended December 31, 2009. Merchant Marine Company also sells fishing boats. Its beginning and ending inventories for the year 2009 are $120 million and $90 million, respectively. It had cost of goods sold of $1,100 million for the year ended December 31, 2009.
Required:
1. Calculate the inventory turnover and number of days' sales in inventory for the two companies.
2. Interpretive Question: Are the results of these ratios what you expected? Which company is managing its inventory more efficiently?