Question

Financial​ ratios: Asset management.  The financial statements for Tyler​ Toys, Inc. are shown in the popup​ window: Calculate the inventory​ turnover, days' sales in​ inventory, receivables​ turnover, days' sales in​ receivables, and total asset turnover for 2013 and 2014 for Tyler Toys. Should any of these ratios or the change in a ratio warrant concern for the managers of Tyler Toys or the​ shareholders?

What is the inventory turnover ratio

Tyler Toys, Inc.
Income Statement for Years Ending December 31, 2013 and 2014
	2014	2013
Revenue	$14,147,468	$13,566,642
Cost of goods sold	$-8,447,631	$-8,131,765
Selling, general, and administrative expenses	$-997,664	$-981,000
Depreciation	$-1,497,391	$-1,472,386
EBIT	$3,204,782	$2,981,491
Interest expense	$-375,306	$-354,319
Taxes	$-1,075,201	$-998,325
Net income	$1,754,275	$1,628,847

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Tyler Toys, Inc.
Balance Sheet as of December 31, 2013 and 2014
ASSETS	2014	2013	LIABILITIES	2014	2013
Current assets			Current liabilities
Cash	$191,232	$187,898	Accounts payable	$1,546,422	$1,455,206
Investments	$180,880	$121,730	Short-term debt	$311,739	$332,533
Accounts receivable	$668,133	$631,533	Total current liabilities	$1,858,161	$1,787,739
Inventory	$588,357	$563,662	Long-term liabilities
Total current assets	$1,628,602	$1,504,823	Debt	$7,286,985	$6,603,032
Long-term assets			Other liabilities	$1,462,405	$1,345,509
Investments	$3,053,133	$2,827,423	Total liabilities	$10,607,551	$9,736,280
Plant, property, and equipment	$8,497,766	$8,480,873	OWNERS’ EQUITY
Goodwill	$347,485	$346,931	Common stock	$1,457,579	$1,454,945
Intangible assets	$1,158,909	$956,906	Retained earnings	$2,620,765	$2,925,731
			Total owners’ equity	$4,078,344	$4,380,676
			TOTAL LIABILITIES
TOTAL ASSETS	$14,685,895	$14,116,956	AND OWNERS’ EQUITY	$14,685,895	$14,116,956

​ Right-click on the table and select Copy to Clipboard and then​ right-click the highlighted texts in the popup dialogue box and select Copy

in order to paste its contents into a

spreadsheet.

                                                                                                                                                                    

Answer 1

1. Inventory turnover = Cost of good sold / Inventory

2013 = $8,131,765 / $563,662 = 14.42

2014 = $8,447,631 / {($588,357 + $563,662)/2} = 14.66

2. Days Sales in inventory = 365 / Inventory turnover

2013 = 365 / 14.42 = 25.31 ~ 25 days

2014 = $ 365 / 14.66 = 24.89 ~ 25 days

3. Receivable turnover = Net credit sales / Average account receivable

2013 = $13,566,642 / $631,533 = 21.48

2014 = $14,147,468 / {(668,133 + $631,533)/2} = 21.77

4. Days sales in receivable = 365 / Receivable turnover

2013 = 365 / 21.48 = 16.99 ~ 17 days

2014 = 365 / 21.44 = 17.02 ~ 17 days

5. Total assets turnover = Net sales / Average total assets

2013 = $13,566,642 / $14,116,956 = 0.96

2014 = $14,147,468 / {($14,685,895 + $14,116,956)/2} = 0.98

All the three ratios are increased marginally in year 2014 compared to the 2013. All three ratios allow the stakeholders to make better sense of account and better understand the current performance.