Ability to sell merch and collect receivables

Question 1

Inventory Turnover

Answer 1

-Sell Merch and Collect Rec.
M. # of times company sells average level of merch during the year

= COGS / Avg Merch Inventory
-> use COGS b/c COGS price never changes
= don’t want too low or too high

Question 2

Days’ Sales in Inventory

Answer 2

-Sell Merch and Collect Rec.
M. average # of days merch stays in store before being bought

= 365 / Inventory Turnover [COGS / Avg Merch Inv.]

Question 3

Gross Profit

Answer 3

-Sell Merch and Collect Rec.
MOST WATCHED FOR PROFITABILITY
M. profitability of each net sales dollar above COGS

= Gross Profit / Net Sales Revenue

Question 4

A/R Turnover Ratio

Answer 4

-Sell Merch and Collect Rec.
M. # of times company collects avg. receivables balances in year.

= Net credit sales / Average Net A/R
= don’t want too high or low

Question 5

Days’ Sales in Receivables

Answer 5

-Sell Merch and Collect Rec.
M. # of days it takes to collect receivables

= 365 / A/R Turnover [net credit sales / Avg. Net A/R]