Inventory ratios for Dell and HP Dell Inc. and Hewlett-Packard Development Company, L.P. (HP) are both manufacturers of computer equipment and peripherals. However, the two companies follow two different strategies. Dell follows primarily a build-to-order strategy, where the consumer orders the computer from a Web page. The order is then manufactured and shipped to the customer within days of the order. In contrast, HP follows a build-to-stock Strategy, where the computer in first built for inventory, then sold from inventory to retailers, such as Best Buy. The two strategies can be seen in the difference between the inventory turnover and number of days sales in inventory ratios for the two companies. The following financial statement information is provided for Dell and HP for a recent fiscal year (in millions): Dell HP Inventory, beginning of period $ 1,301 $ 7,490 Inventory, end of period 1,404 6,317 Cost of goods sold 48,260 92,385 a. Determine the inventory turnover ratio and the number of days’ sales in inventory ratio for each company. Use 365 days and round to one decimal place. b. Interpret the difference between the ratios for the two companies.
Inventory ratios for Dell and HP Dell Inc. and Hewlett-Packard Development Company, L.P. (HP) are both manufacturers of computer equipment and peripherals. However, the two companies follow two different strategies. Dell follows primarily a build-to-order strategy, where the consumer orders the computer from a Web page. The order is then manufactured and shipped to the customer within days of the order. In contrast, HP follows a build-to-stock Strategy, where the computer in first built for inventory, then sold from inventory to retailers, such as Best Buy. The two strategies can be seen in the difference between the inventory turnover and number of days sales in inventory ratios for the two companies. The following financial statement information is provided for Dell and HP for a recent fiscal year (in millions): Dell HP Inventory, beginning of period $ 1,301 $ 7,490 Inventory, end of period 1,404 6,317 Cost of goods sold 48,260 92,385 a. Determine the inventory turnover ratio and the number of days’ sales in inventory ratio for each company. Use 365 days and round to one decimal place. b. Interpret the difference between the ratios for the two companies.
Solution Summary: The author explains the inventory turnover ratio for Company HP and Company D.
Dell Inc. and Hewlett-Packard Development Company, L.P. (HP) are both manufacturers of computer equipment and peripherals. However, the two companies follow two different strategies. Dell follows primarily a build-to-order strategy, where the consumer orders the computer from a Web page. The order is then manufactured and shipped to the customer within days of the order. In contrast, HP follows a build-to-stock Strategy, where the computer in first built for inventory, then sold from inventory to retailers, such as Best Buy. The two strategies can be seen in the difference between the inventory turnover and number of days sales in inventory ratios for the two companies. The following financial statement information is provided for Dell and HP for a recent fiscal year (in millions):
Dell
HP
Inventory, beginning of period
$ 1,301
$ 7,490
Inventory, end of period
1,404
6,317
Cost of goods sold
48,260
92,385
a. Determine the inventory turnover ratio and the number of days’ sales in inventory ratio for each company. Use 365 days and round to one decimal place.
b. Interpret the difference between the ratios for the two companies.
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