Question

Danaher Corporation manufactures a variety of products, including electronic measurement instruments and network communications products, water quality measurement systems, and medical and dental instruments. Selected financial statement data and related performance indicators follow.

($ in millions) 2012 2013 2014
Sales $18,260.4 $19,118.0 $19,913.8
Cost of goods sold 8,846.1 9,160.4 9,471.3
Average inventory 1,797.40 1,798.50 1,807.50
Selected performance measures:
Gross profit (%) 51.60% 52.10% 52.40%
Inventory turnover ratio 4.92 5.09 5.24


Required:
How well did Danaher manage its inventories over the three-year period?

Answer 1

Danaher Corporation

Danaher managed its inventories well over the three-year period, as it continued to improve its inventory turnover ratio. The company did not engage in overstocking. It was purchasing inventory every 2 months on the average. Its sales continued to record improvement over the years.

Step-by-step explanation:

a) Data and Calculations:

($ in millions) 2012 2013 2014

Sales $18,260.4 $19,118.0 $19,913.8

Cost of goods sold 8,846.1 9,160.4 9,471.3

Average inventory 1,797.40 1,798.50 1,807.50

Selected performance measures:

Gross profit (%) 51.60% 52.10% 52.40%

Inventory turnover ratio 4.92 5.09 5.24

B) Danaher had a low inventory turnover ratio in 2012, but this improved in 2013 and 2014. Usually, a low inventory turnover ratio implies weak sales and the keeping of excess inventory (known as overstocking). No wonder the gross profit ratio was poorest in 2012 when compared with 2013 and 2014. The higher inventory turnover ratios in 2013 and 2014 show that the sales for the two years were very strong.