Question

The following information is available for Gildan Activewear Inc., headquartered in Montreal, for three recent fiscal years (in U.S. $ thousands):

		2016		2015		2014
Inventory		$ 851,033		$ 779,407		$ 595,794
Net sales		2,959,238		2,359,994		2,284,303
Cost of goods sold		2,229,130		1,701,311		1,550,266

Calculate the inventory turnover, days in inventory, and gross profit margin for 2016 and 2015. (Round inventory turnover and gross profit margin ratio to 1 decimal place, e.g. 15.2. Round days in inventory to nearest day. Use 365 days for calculation.)

		Inventory Turnover		Days In Inventory		Gross Profit Margin
2016		enter the inventory turnover rounded to 1 decimal place times		enter the days in inventory rounded to nearest day days		enter percentages rounded to 1 decimal place %
2015		enter the inventory turnover rounded to 1 decimal place times		enter the days in inventory rounded to nearest day days		enter percentages rounded to 1 decimal place %

Based on the ratios calculated in part (a), did Gildan’s liquidity and profitability improve or deteriorate in 2016?

Liquidity is		select an option                                                                      improveddeteriorated
Profitability is		select an option                                                                      improveddeteriorated

Answer 1

2016:

Average Inventory = (Beginning Inventory + Ending Inventory) / 2
Average Inventory = ($779,407 + $851,033) / 2
Average Inventory = $815,220

Inventory Turnover = Cost of Goods Sold / Inventory
Inventory Turnover = $2,229,130 / $815,220
Inventory Turnover = 2.7 times

Days in Inventory = 365 / Inventory Turnover
Days in Inventory = 365 / 2.7
Days in Inventory = 135.2 days

Gross Profit Margin = (Net Sales - Cost of Goods Sold) / Net Sales
Gross Profit Margin = ($2,959,238 - $2,229,130) / $2,959,238
Gross Profit Margin = 24.7%

2015:

Average Inventory = (Beginning Inventory + Ending Inventory) / 2
Average Inventory = ($595,794 + $779,407) / 2
Average Inventory = $687,600.50

Inventory Turnover = Cost of Goods Sold / Inventory
Inventory Turnover = $1,701,311 / $687,600.50
Inventory Turnover = 2.5 times

Days in Inventory = 365 / Inventory Turnover
Days in Inventory = 365 / 2.5
Days in Inventory = 146.0 days

Gross Profit Margin = (Net Sales - Cost of Goods Sold) / Net Sales
Gross Profit Margin = ($2,359,994 - $1,701,311) / $2,359,994
Gross Profit Margin = 27.9%

Answer b.

Liquidity is measured by inventory turnover and days in inventory, which is improved over the year.
Profitability is measured by gross profit margin which is deteriorated over the year