Refer to the following selected financial information from Texas Electronics. Compute the company’s inventory turnover for Year 2.

Year 2 Year 1
Cash $39,500 $34,250
Short-term investments 110,000 70,000
Accounts receivable, net 95,500 89,500
Merchandise inventory 131,000 135,000
Prepaid expenses 14,100 11,700
Plant assets 398,000 348,000
Accounts payable 103,400 117,800
Net sales 721,000 686,000
Cost of goods sold 400,000 385,000

Inventory Turnover for year 2 is 3 times

Explanation:

Inventory turnover is the ratio that how many time a business has sold or replaced the inventory during a given period. A business is considered more profitable if it has high inventory turnover.

According to given data

                                               Year 2          Year 1

Merchandise inventory         $131,000      $135,000

Cost of goods sold                $400,000     $385,000

Average Inventory = ( Opening Inventory + Closing Inventory ) / 2

Average Inventory = ( $131,000 + $135,000 ) / 2 = $133,000

Inventory turnover = Cost of Goods Sold  / Average Inventory value

Inventory Turnover= $400,000 / $133,000 = 3 times

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