Week 2 Discussion Responses 1

Victoria Posts

Medtronic

Inventory Turnover Ratio = Cost of Goods Sold (COGS) / Average Inventory

2021: $10,483M / $4,313M = 2.43

2020: $9,424M / $4,229M = 2.23

Number of Days’ Sales in Inventory = Number of Days in the Period / Inventory Turnover Ratio

2021: 365 / 2.43 = 150 days

2020: 365 / 2.23 164 days

Inventory turnover ratio is the number of times inventory is sold and replaced during the operating cycle (Porter & Norton, 2018). This ratio measures how efficiently a company uses its inventory. A low ratio can indicated weak sales and excess inventory whereas a high ratio can indicate strong sales but perhaps a poor inventory replenishment. The number of days’ sales in inventory refers to how long it takes for a company to convert its inventory to sold goods. The ratios for Medtronic are on part with other competitors in the medical device industry (Stock Analysis, 2023). Compared to other industries, specifically retail, the turnover ratio is quite low. However, in the medical device industry, these products are used less commonly that are typical retail goods and therefore would be sold and replenished less. The financials from 2020 indicated a lower inventory turnover ratio than in 2021, but the ratio appears to be quite consistent. The number of days’ sales in inventory for 2020 are higher than 2021. This can be attributed to the lower purchase volume during the pandemic as elective procedures were being pushed out for safety purposes.

Medtronic appears to be doing a good job at managing inventory and converting to sales when compared to its past performance and industry averages. As an investor, I would be confident in Medtronic’s ability to secure sale and ensure there is a stock to support hospitals’ needs. It does appear improvements have been made in the reduction of days’ sales in inventory which decreased by 14 days YoY and the inventory turnover ratio increased.

Medtronic. (2020). Annual Report. Retrieved from https://www.annualreports.com/HostedData/AnnualReportArchive/m/NYSE_MD T_2020.pdfLinks to an external site.Links to an external site.

Medtronic. (2021). Annual Report. Retrieved from https://www.annualreports.com/HostedData/AnnualReports/PDF/NYSE_MDT_20 21.pdfLinks to an external site.Links to an external site. Porter, G., & Norton, C. (2018). Using financial accounting information: The alternative to debits and credits (10th ed.). Retrieved from https://www.cengage.comLinks to an external site.

Stock Analysis. (2023). Analysis of Short-term (operating) Activity Ratios. Retrieved from https://www.stock-analysis-on.net/NYSE/Company/Medtronic-PLC/Ratios/Short-term- Operating-Activity

Jonathan’s Post

Hello classmates!

The company I will continue to be analyzing will be Gamestop (NYSE: GME).

Ratio Calculations

To begin the discussion, the equations for the ratios are as follows:

• Inventory Turnover Ratio = Cost of Goods Sold (COGS) / Average Inventory (Porter & Norton, 2018)

• Number of Days’ Sales in Inventory = Number of Days in the Period / Inventory Turnover Ratio

To support the calculations, below is a table of COGS and inventory data from the annual reports:

Using the information gathered, the Inventory Turnover Ratio comes out to be 6.15 for 2021 and 5.24 for 2020. The Number of Days’ Sales in Inventory comes out to be 58.6 for 2021 and 68.7 for 2020.

Industry Average Comparison

The industry Gamestop competes in has an average of 5.16 for the Inventory Turnover Ratio, which is not far off from Gamestop’s 2021 and 2020 ratios. This shows that Gamestop is executing inventory turnover and holding an inventory that competes with the larger electronics players that it competes against. As Gamestop continues to reduce its brick-and-mortar footprint, it may be able to further reduce its inventory through

supply chain optimization and partnering with larger organizations for next day inventory replenishment.

Ratio Discussion and Investor Recommendation

These metrics can change drastically if an organization holds increased inventory and sales drop. For example, if in a given year an organization makes an effort to build inventory at the same time sales are declining, these ratios will be an early indication of issues within the organization that they will have to solve in the future with aging inventory (Porter & Norton, 2018).

As an investor, I would be satisfied with the company’s inventory management based on their ratios and compared against the industry average. Gamestop is turning inventory over 5-6 times a year. I would be interested to see, however, a further breakdown of their inventory in terms of obsolete / aging segments of inventory as innovation continues to disrupt the gaming industry. That would be an area of concern as it is also where the auditor’s focused during annual report evaluation. Additionally, it would be of value to separate the hardware versus software segments of the inventory to understand if Gamestop was managing the declining segments of its sales in a fashion that would be worthy of investment (D’Anastasio, 2022).

Thank you,

Jonathan

D’Anastasio, C. (2022). GameStop Reports Revenue Decline Amid Broader Gaming Slump. Bloomberg.Com, N.PAG. Retrieved from https://library.uagc.edu/index.aspxLinks to an external site. Gamestop (2022). 2021 Annual Report - Investor Relations. Gamestop. Retrieved from https://news.gamestop.com/Links to an external site. Gamestop (2021). 2020 Annual Report - Investor Relations. Gamestop. Retrieved from https://news.gamestop.com/Links to an external site. Mergent Online (2022). Gamestop, Inc. Company and Competitor Database. Retrieved from http://www.mergentonline.comLinks to an external site. Porter, G., & Norton, C. (2018). Using financial accounting information: The alternative to debits and credits (10th ed.). Retrieved from https://www.cengage.comLinks to an external site.