Question

Analyzing and Interpreting the Inventory Turnover Ratio Dell Inc. is the leading manufacturer of personal computers. In a recent year, it reported the following in dollars in millions: Net sales revenue $ 78,660 Cost of sales 58,606 Beginning inventory 2,538 Ending inventory 2,678 Source: Dell Inc. Required: 1. Determine the inventory turnover ratio and average days to sell inventory for the current year. 2. Explain the meaning of each number.

Answer 1

1. Inventory turnover ratio = 22.47 and Average days to sell the inventory = 16 days

Step-by-step explanation:

2. Inventory Turnover Ratio indicates how quickly an entity completes its inventory cycle i.e. sell its inventory. In the given scenario, Dell Inc. is able to sell its inventory 22.47 times during the year.

The inventory turnover ratio is calculated by dividing the cost of goods sold with the average inventory held during the year

Hence, average number of days to sell the inventory is 16 days which shows that Dell Inc. is able to sell its inventory in 16 days

It should be taken into consideration that this ratio should be compared with the industry benchmark since the inventory holding period varies significantly from one industry to another