ATC 5-3 Real-World Case Inventory management issues at the Penske Automotive Group
The following data were extracted from the 2016 financial statements of Penske Automotive Group, Inc. This company operates automobile dealerships, mostly in the United States, Canada, and Western Europe, and commercial truck dealerships in Australia, New Zealand, and the United Kingdom. The company had 355 dealerships as of the end of 2016. Dollar amounts are in Millions
| December 31, 2016 | December 31, 2015 | |
|---|---|---|
| Revenue | $20,118.5 | $19,284.9 |
| Cost of sale | 17,151.9 | 16,417.4 |
| Gross profit | 2,966.6 | 2,867.5 |
| Operating income before taxes | 574.9 | 566.5 |
| Net income | 342.9 | 326.1 |
| Ending inventory | 3,408.2 | 3,463.5 |
Required
a. Compute Penske’s gross margin percentage for 2016 and 2015.
b. Compute Penske’s average days to sell inventory for 2016 and 2015.
c. How much higher or lower would Penske’s earnings before taxes have been in 2016 if its gross margin percentage had been the same as it was in 2015? Show all supporting computations.
ATC 5-4 Business Applications Case Performing ratio analysis using real-world data
Costco Wholesale Corporation operated 715 stores as of August 28, 2016. The following data were taken from the company’s annual report. All dollar amounts are in millions.
| Fiscal Years Ending | August 28, 2016 | August 30, 2015 |
|---|---|---|
| Net sales | $116,073 | $113,666 |
| Cost of goods sold | 102,901 | 101,065 |
| Net income | 2,350 | 2,377 |
| Merchandise inventory | 8,969 | 8,908 |
Required
a. Compute Costco’s inventory turnover ratio for 2016 and 2015.
b. Compute Costco’s average days to sell inventory for 2016 and 2015.
c. Based on your computations in Requirements a and b, did Costco’s inventory management get better or worse from 2015 to 2016?
ATC 5-5 Business Applications Case Performing ratio analysis using real-world data
Ruby Tuesday’s, Inc. operated 646 casual dining restaurants across the United States as of May 31, 2016. Signet Jewelers Limited claims to be the world’s largest retailer of diamond jewelry. Its stores include Zales, Jared, Kay Jewelers, and Piercing Pagoda. As of January 30, 2016, it had over 3,500 retail outlets.
The following data were taken from these companies’ 2016 annual reports. All dollar amounts are in thousands.
| Ruby Tuesday’s | Signet Jewelers | |
|---|---|---|
| May 31, 2016 | January 30, 2016 | |
| Revenue | $1,091,228 | $6,550,200 |
| Cost of goods sold | 298,529 | 4,109,800 |
| Net income | (50,682) | 467,900 |
| Merchandise inventory | 13,799 | 2,453,900 |
Required
a. Before performing any calculations, speculate as to which company will take the longest to sell its inventory. Explain the rationale for your decision.
b. Calculate the inventory turnover ratios for Ruby Tuesday’s and Signet.
c. Calculate the average days to sell inventory for Ruby Tuesday’s and Signet.
d. Do the calculations from Requirements b and c confirm your speculations in Requirement a?
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