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Deere & Company is a global manufacturer and distributor of agricultural, construction, and forestry equipment. It reported

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Deere & Company is a global manufacturer and distributor of agricultural, construction, and forestry equipment. It reported the following information in its 2009 annual report.

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Instructions(a) Compute Deere's inventory turnover ratio and days in inventory for 2009.(b) Compute Deere's current ratio using the 2009 data as presented, and then again after adjusting for the LIFO reserve.(c) Comment on how ignoring the LIFO reserve might affect your evaluation of Deere'sliquidity.

Inventory Turnover Ratio
Inventory Turnover RatioThe inventory turnover ratio is a ratio of cost of goods sold to its average inventory. It is measured in times with respect to the cost of goods sold in a year normally.    Inventory Turnover Ratio FormulaWhere,...
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(in millions) 2009 2008 Inventories (LIFO) $ 2,397 30,857 12,753 1,367 16,255 3,042 Current assets Current liabilities LIFO reserve Cost of goods sold

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a b Based on data presented Current ratio 30857 12753 242 1 After adjusting for LIFO r...View the full answer


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Inventory turnover is a key metric that helps businesses evaluate the efficiency of their operations. A high turnover ratio is generally considered positive, indicating that the company is effectively selling its inventory and making efficient use of its resources. On the other hand, a low turnover ratio may indicate issues such as overstocking or slow sales and may require further examination to identify and address the underlying causes. Businesses use this ratio to make decisions about inventory levels, production schedules, and pricing strategies. It also helps businesses to identify areas where they may need to make improvements, such as reducing lead times for production or optimizing sales and marketing efforts. Additionally, inventory turnover is used by investors and analysts as a key performance indicator to evaluate the financial health and growth potential of a company.

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