Question

Presented below is financial data for the XPO Corporation.  

	Amounts in thousands
Sales revenue	$11,750
Cost of goods sold	7,925
Net income	2,250
Inventory	825
Current assets	5,875
Current liabilities	3,375

1. Calculate the following ratios.

• Inventory turnover
• Inventory-on-hand period
• The current ratio for the year

  

2. Assuming the following industry averages, comment on XPO Corp's performance in relation to the industry averages. Make sure to indicate what account(s) could be attributed to XPO's better or worse performance as compared to the industry average and indicate whether the accounts you've identified would be higher or lower than the industry's accounts to account for its better or worse performance.

• Inventory turnover: 12 times
• Inventory on hand period: 28 days
• Current ratio: 1.5 times

Answer 1

1.	Calculation of ratios
a)	Inventory Turnover = Cost of Goods Sold / Inventory
		=	7925/825
		=	9.61
	Inventory Turnover		9.61 times
b)	Inventory on hand period = Number of days in the period/ Inventory Turnover for the Period
		=	365 days/9.61
		=	37.98
	Inventory on hand = 37.98 days
			Assume 365 days in a year
c)	Current Ratio = Current assets / Current liabilities
	Current Ratio = 5875/3375
	Current Ratio = 1.741 times

2.Comment on XPO Corp's performance
			Company	Industry	Comment	Performance
Inventory Turnover			9.61	12	Lower than Industry Accounts	High inventory turnover typically means a company is selling goods very quickly and that demand for their product exists. Here company performance is worse than Industry
Inventory on hand period			37.98	28	Higher than Industry Accounts	Inventory on hand means the number of days it took a company to sell its inventory during a recent year.Here company performance is worse than Industry
Current Ratio			1.741	1.5	Higher than Industry Accounts	High current ratio means that the company is more likely to meet its liabilities. Company Performance is Better than Industry