Week 2 Discussion 1 & 2
Week 2 - Discussion Forum 2
Guided Response: Respond to at least two of your fellow students’ or instructor posts in a substantive manner and provide information or concepts that they may not have considered. Each response should have a minimum of 100 words and be respectful of others’ opinions and beliefs that differ from your own. Support your position by using information from the week’s readings. You are encouraged to post your required replies earlier in the week to promote more meaningful and interactive discourse in this discussion forum. Continue to monitor the discussion forum until Day 7 and respond with robust dialogue to anyone who replies to your initial post.
WednesdayMay 27 at 7:19pm
Greeting Classmates:
Comparison with the industrial averages
According to IBIS World, the industrial average of inventory turnover of a retail grocery store is 13.56, utilizing the cost of goods sold method. In regard to the above formulations, the company’s turnover ratios for year one and year two averages to 7 and 12, respectively. This implies that the company replenishes its stock seven times during the first year and 12 times during the second year. The assessment of inventory turnover is essential since gross profit is realized each time turnover occurs (Azeez, Abubakar & Olamide, 2016). Regarding the company’s attained averages during the two years, they are drawing closer to the industry average, meaning that the business is performing well. Inventory turnover ratio assists business operators to know where they should improve their buying practices.
On the other hand, days’ sales inventory indicates the number of days it would take for a company to turn its inventory. In the calculation of the industrial average, the inventory ratio of the company determines the days’ sales. An ideal turnover rate is between 2 to 4 days. Any ratio lower than two means that the stock is taking too long in the shelves, thus increasing the warehouse charges (Sunjoko, & Arilyn, 2016). The number of purchases done by the company determines the inventory turnover ratio to a great extent. Finally, the company’s inventory management is improving since their inventory ratio is maintained above 2.
Inventory turnover ratio = Cost of goods sold
Average inventory
Average inventory = opening inventory + closing inventory
2
Turnover ratio for year 1 = 16,301 = 7
2,335
Turnover ratio for year 2 = 6,120,000 = 12
510,000
Days’ sales inventory = closing inventory times 365 days
Cost of goods sold
Year 1 = 2,250 times 365 = 50.38
16,301
Year 2 = 520,000 times 365 = 31.01
6,120,000
References
Azeez, O. T., Abubakar, M. A., & Olamide, F. T. (2016). Analysis of the effects of working capital management on the profitability of listed Nigerian conglomerate companies. FWU Journal of Social Sciences, 10(1), 10-20.
Sunjoko, M. I., & Arilyn, E. J. (2016). Effects of inventory turnover, total asset turnover, fixed asset turnover, current ratio, and average collection period on profitability. Journal Bisnis dan Akuntansi, 18(1), 79-83.
YesterdayMay 28 at 6:48am
Build-A-Bear Workshop
2020 2019
Inventory Turnover Ratio 6.84 6.7
Days in Inventory 53 54
Build-A-Bear has maintained a consistent inventory turnover ratio for 2020 and 2019 at 6.84 and 6.7 respectively. In addition, time in inventory has only decreased slightly from 54 days in 2019 to 53 days in 2020.
Inventory ratio tells you how fast a company can sell inventory. A low ratio would indicate weak sales and excess inventory while a high ratio would indicate strong sales and insufficient inventory. The speed at which a company can sell inventory is a good indicator of business performance. Ideal inventory ratio is 4-6 so Build-A-Bear has a slightly high ratio (Nguyen, 2018). This indicates that sales are slower than expected creating excess inventory. This is in line with other indicators as to financial performance.
The Days in Inventory is an indicator of how efficiently and frequently selling off its inventory and increasing profit. This shows the effectiveness of the company’s inventory management.
Mattel, a competitor of Build-A-Bear has an inventory turnover ratio of 9.08 and maintains inventory for 40 days average. Compared to Build-A-Bear, Mattel is turning over inventory much quicker than Build-A-Bear. This could be in part to the variety of inventory Mattel sells. Build-A-Bear also has a longer hold time than its competitors which can be costly to the company. Mattel seems to have a better strategy for managing inventory and seems to be in a better position than Build-A-Bear. There are no true competitors that are have exactly the same service as Build-A-Bear which can skew the comparison.
References:
Build A Bear Workshop. (2020). Financial Reports. Retrieved from https://buildabear.gcs-web.com/financial-information/annual-reports (Links to an external site.)
Mattel Inc. (2020). 2019 Annual Report. Retrieved from https://mattel.gcs-web.com/annual-reports
Nguyen, Chinh. (2018, August 22). Inventory Turnover Ratios for Ecommerce: Everything You Need To Know. Retrieved from https://www.webretailer.com/b/inventory-turnover-ratio/
Porter, G., & Norton, C. (2018). Using financial accounting information: The alternative to debits and credits (10th ed.). Retrieved from https://www.cengage.com