| Investing Lesson 3 |
| Quiz: How to Analyze a Balance Sheet |
Explanation of $2,000 Question
Current Year's Cost of Goods
Sold
----------------------(divided by)------------------
Average Inventories
Since you know the Inventory Turn formula, all you need to do is plug the numbers in.
On the income statement excerpt, you'll see that Hershey's Cost of Revenues (which is the same thing as Cost of Goods Sold or COGS), were $2,471,151,000.
From the balance sheet excerpt, you'll see that inventories for the past two years were $605,173,000 and $602,202,000 respectively. Average the inventories together ($605,173,000 + $602,202,000 divided by 2). The answer is $603,687,500.
Plug the numbers in:
Current Year's Cost of Goods
Sold = $2,471,151,000
----------------------(divided by)------------------
Average Inventories = $603,587,500
$2,471,151,000 ÷ $603,587,500 = 4.0941 which is the number of inventory turns.
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