Question

Comparing Bell and Gangway Financial information for Bell and Gangway (two computer manufacturers) follows: (in millions):

Bell:
Year Ended 12/31/2020 Year Ended 12/31/2019
Sales $61,133 $57,420
Cost of sales $49,462 $47,904
Gross margin $11,671 $9,516
Inventory $1,180 $660
Gangway:
Year Ended 12/31/2020 Year Ended 12/31/2019
Sales $8,922 $8,457
Cost of Sales $7,316 $6,951
Gross margin $1,606 $1,506
Inventory $400 $351
Required:
a. Compare Bell and Gangway in terms of their percentage changes in sales and gross margin.
b. Compare Bell and Gangway in terms of their gross margin percentages.
c. Compare Bell and Gangway in terms of inventory turnover and days’ sales in inventory
d. In your opinion, which firm has had better financial performance? Support your answer using your calculations in parts a, b, and c.

Answer 1

Bell shows superior financial performance with higher sales and gross margin growth, increased inventory turnover, and reduced days sales in inventory compared to Gangway.

Step-by-step explanation:

To compare Bell and Gangway's financial performance, we will calculate the percentage changes in sales and gross margin, gross margin percentages, inventory turnover, and days’ sales in inventory.

a. Percentage Changes in Sales and Gross Margin

• Bell's sales change: ((61133 - 57420) / 57420) * 100 = 6.44%
• Bell's gross margin change: ((11671 - 9516) / 9516) * 100 = 22.71%
• Gangway's sales change: ((8922 - 8457) / 8457) * 100 = 5.50%
• Gangway's gross margin change: ((1606 - 1506) / 1506) * 100 = 6.64%

b. Gross Margin Percentages

• Bell's gross margin percentage (2020): (11671 / 61133) * 100 = 19.08%
• Gangway's gross margin percentage (2020): (1606 / 8922) * 100 = 18.00%

c. Inventory Turnover and Days’ Sales in Inventory

• Bell's inventory turnover (2020): 49462 / 1180 = 41.91 times
• Bell's days’ sales in inventory (2020): 365 / 41.91 = 8.71 days
• Gangway's inventory turnover (2020): 7316 / 400 = 18.29 times
• Gangway's days’ sales in inventory (2020): 365 / 18.29 = 19.95 days

d. Financial Performance Evaluation

In evaluating which firm has had better financial performance, it is evident that Bell has demonstrated a superior capacity for generating sales and managing their inventory, reflected by their higher inventory turnover and lower days’ sales in inventory. Additionally, while both companies saw an increase in sales, Bell has had a significantly higher increase in their gross margin percentage. Although Gangway maintains a strong gross margin percentage, Bell's overall financial metrics suggest greater efficiency and profitability growth.