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Inventory Turns and Inventory Costs We are comparing The Home Depot, Inc. and Lowe's Companies, Inc., the two giant retailers in construction products and services,

Inventory Turns and Inventory Costs

We are comparing The Home Depot, Inc. and Lowe's Companies, Inc., the two giant retailers in construction products and services, regarding their inventory turns and inventory costs.

(a)[2] You need to find official corporate data for 2015 to fill in the first part of the table below. Specifically, you need to locate annual reports and 10K fillings for 2015 as follows: The Home Depot, Inc.: http://corporate.homedepot.com/ Lowe's Companies, Inc.: http://www.lowes.com/ and find "Investor Relations" Note that: Gross profit = Net sales COGS; and Gross profit margin = Gross profit/Net Sales.

Part 1 Indicators in 2015 Home Depot Lowe's

End of fiscal year (date)

Net sales (millions of $)

Gross profit (millions of $)

Cost of goods sold (COGS, millions of $)

Merchandise Inventory (millions of $)

Gross profit margin (GPM, %, 2 decimals)

Annual inventory cost rate (%, 2 decimals) 24.00% 24.00%

Part 2 Inventory Turns

Home Depot Lowe's Inventory duration (days, 2 decimals)

Inventory turns (turns per year, 2 decimals)

Part 3 Inventory Costs Home Depot Lowe's

A cordless drill ($) $140.00 $140.00

Perunit inventory holding cost rate (%, 2 decimals)

Inventory holding cost ($)

Inventory holding cost difference (Lowes HomeDepot, $)

Gross profit ($)

Immediate gross profit ($)

Assume that the average annual inventory holding cost rate is 24% for both companies; price and inventory turns are independent; and there are 365 days of operations in a year. For the following parts, show equations and calculations, and copy and complete the above table.

(b)[2] What is the average number of days that a product typically stays in the two companies' inventories until sold (inventory duration)? (2 decimals)

(c)[1] What are the inventory turns a year at these two retailers? (2 decimals)

(d)[1] What are the perunit inventory cost rates at the two companies? (%, 2 decimals)

(e)[2] Regarding equivalent cordless drills with the same unit cost of $140, which retailer has the lower inventory holding cost and by how much? (Dollar amounts)

(f)[2] Find the average gross profit on an inventory merchandise investment of $140. Using your result in part (e), find the immediate gross profit (gross profit minus inventory holding cost). Which company has the higher immediate gross profit?

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