Question

Wal Mart Stores Consolidated Income Statement (amounts in millions)

Year 4             Year 5             Year 6             Year 7

Sales Revenues                                               $83,412           $94,749           $106,146

Cost of Goods Sold                                        $65,586           $74,564           $83,663

Accounts Receivables             $ 690              $     900           $      853          $      845         

Inventories                              $11,014           $14,064           $15,989           $ 15,897                     

Question # 6

Please calculate the accounts receivable and inventory ratios for years 5 thru 7.

Question # 7

Does any of the inventory scenarios and interpretations that we discussed at the end of session 4 apply here?

Question # 8

Why does Wal Mart have such a big difference between its account receivable turnover ratios and inventory ratios? Does it have anything to do with the line of business it is active?

Answer 1

6.accounts recievable ratio=sales/average accounts recievable

year 5; 83412/900=92.68%

year 6; 94749/853=111.08%

year 7; 106146/845=125.6%

inventory ratio; cost of goods sold/average inventory

year 5;65586//14064=4.66%

year 6;74564/15989=4.66%

year 7;83663/15897=5.2%

7.(need information regarding session 4 !)

8.A higher inventory turnover ratio indicates more effective cash management and reduces the incidence of inventory obsolescence. The best measure of inventory utilization is the inventory turnover ratio (aka inventory utilization ratio), which is the total annual sales or the cost of goods sold divided by the cost of inventory

The accounts receivable turnover ratio is an accounting measure used to quantify a company's effectiveness in collecting its receivables or money owed by clients.

A high receivables turnover ratio can indicate that a company’s collection of accounts receivable is efficient and that the company has a high proportion of quality customers that pay their debts quickly. both the accounts recievable ratio and the inventory ratios have increased which indicates the effective management of the business. such big differences are due to the change in sales volume.