Zarruk Construction's DSO is 34 days (on a 365-day basis), accounts receivable are $68 million, and its balance sheet shows inventory of $156 million. The firm's cost of goods sold is 70% of sales. What is the inventory turnover ratio? Oa.3.28 Ob. 2.00 c. 7.96 Od. 4.68 Oe. 7.51
Zarruk Construction's DSO is 34 days (on a 365-day basis), accounts receivable are $68 million, and its balance sheet shows inventory of $156 million. The firm's cost of goods sold is 70% of sales. What is the inventory turnover ratio? Oa.3.28 Ob. 2.00 c. 7.96 Od. 4.68 Oe. 7.51
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
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![**Calculating Inventory Turnover Ratio: Zarruk Construction**
**Problem Statement:**
Zarruk Construction's Days Sales Outstanding (DSO) is 34 days (on a 365-day basis), accounts receivable are $68 million, and its balance sheet shows inventory of $156 million. The firm's cost of goods sold (COGS) is 70% of sales. What is the inventory turnover ratio?
**Multiple Choice Options:**
a. 3.28
b. 2.00
c. 7.96
d. 4.68
e. 7.51
**Solution Explanation:**
To find the inventory turnover ratio, we typically use the formula:
\[ \text{Inventory Turnover Ratio} = \frac{\text{Cost of Goods Sold (COGS)}}{\text{Average Inventory}} \]
Given data:
- DSO = 34 days
- Accounts Receivable = $68 million
- Inventory = $156 million
- COGS = 70% of sales
First, we need to find the sales.
From DSO definition:
\[ \text{DSO} = \frac{\text{Accounts Receivable}}{\text{Sales per day}} \]
\[ 34 = \frac{68 \, \text{million}}{\text{Sales per day}} \]
\[ \text{Sales per day} = \frac{68 \, \text{million}}{34} = 2 \, \text{million/day} \]
\[ \text{Annual Sales} = 2 \, \text{million/day} \times 365 \]
\[ \text{Annual Sales} = 730 \, \text{million} \]
Now, find COGS:
\[ \text{COGS} = 0.70 \times 730 \, \text{million} = 511 \, \text{million} \]
Finally, calculate the inventory turnover ratio:
\[ \text{Inventory Turnover Ratio} = \frac{511 \, \text{million}}{156 \, \text{million}} \approx 3.28 \]
**Answer:**
a. 3.28](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F13ffb487-410c-4808-947c-8212d0ee5563%2F5909bec8-a149-406d-a1f1-6f8de008d6f0%2F3hq390i_processed.png&w=3840&q=75)
Transcribed Image Text:**Calculating Inventory Turnover Ratio: Zarruk Construction**
**Problem Statement:**
Zarruk Construction's Days Sales Outstanding (DSO) is 34 days (on a 365-day basis), accounts receivable are $68 million, and its balance sheet shows inventory of $156 million. The firm's cost of goods sold (COGS) is 70% of sales. What is the inventory turnover ratio?
**Multiple Choice Options:**
a. 3.28
b. 2.00
c. 7.96
d. 4.68
e. 7.51
**Solution Explanation:**
To find the inventory turnover ratio, we typically use the formula:
\[ \text{Inventory Turnover Ratio} = \frac{\text{Cost of Goods Sold (COGS)}}{\text{Average Inventory}} \]
Given data:
- DSO = 34 days
- Accounts Receivable = $68 million
- Inventory = $156 million
- COGS = 70% of sales
First, we need to find the sales.
From DSO definition:
\[ \text{DSO} = \frac{\text{Accounts Receivable}}{\text{Sales per day}} \]
\[ 34 = \frac{68 \, \text{million}}{\text{Sales per day}} \]
\[ \text{Sales per day} = \frac{68 \, \text{million}}{34} = 2 \, \text{million/day} \]
\[ \text{Annual Sales} = 2 \, \text{million/day} \times 365 \]
\[ \text{Annual Sales} = 730 \, \text{million} \]
Now, find COGS:
\[ \text{COGS} = 0.70 \times 730 \, \text{million} = 511 \, \text{million} \]
Finally, calculate the inventory turnover ratio:
\[ \text{Inventory Turnover Ratio} = \frac{511 \, \text{million}}{156 \, \text{million}} \approx 3.28 \]
**Answer:**
a. 3.28
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