Refer to Table 1. Calculate for 2018: inventory turnover ratio

Mark scheme

Marking points from the official mark scheme (Oct/Nov 2018). The mark or mark type is shown in brackets.

1. [1] Cost of goods sold/inventories or revenue/inventories
2. [2] 210m/50m
3. [3] = 4.2
4. [2] $4.2 or $8.4 or $86.9
5. [2] 2017 figures: = 5
6. [1] Receivables/revenue × 365
7. [2] 40m/420m × 365
8. [3] = 34.76 days
9. [2] 2017 figures: = 32.85 days
10. [K] Financial efficiency ratios or activity ratios measure how efficiently the resources/assets of a business are being used
11. [K] Asset turnover ratio measures how effectively net assets generate revenue
12. [K] Trade payables (creditor) days measures how quickly payments are made to creditors
13. [K] The lower the amount of capital used in holding inventories the better
14. [K] Trade receivables measures how long, on average, it takes the business to recover payment from customers who have bought on credit
15. [K] Reduce inventory levels
16. [K] Reduce time for debtors to pay
17. [K] Increase time to pay creditors
18. [K] JIT manufacturing
19. [K] Negotiate sale or return with suppliers so that inventory is only paid for when it is sold
20. [APP] Inventory turnover is increasing – higher than average prices reducing demand?
21. [APP] Days sales in receivables has increased – retail customers and credit card companies might have delayed payment to retailers.
22. [AN] Use JIT in operations – become more flexible in production methods and respond more quickly to customer demand e.g. for changes in fashion. Demand JIT deliveries from suppliers of material.
23. [AN] Reduce time for credit customers to pay and for credit card companies to pay - improves cash flow and liquidity
24. [AN] Offer discounts for quicker payment and this will encourage credit customers to pay more speedily.
25. [AN] Reducing credit availability to customers may result in a loss of sales
26. [AN] Discounts will reduce profitability
27. [EVAL] Feedback from customers appears to be poor; need much better information about customers' tastes and potential demand to operate JIT effectively.
28. [EVAL] Employees may not be responsive to requests for greater flexibility that JIT requires given that communication is poor.
29. [EVAL] Discounts reduce gross profit margin which is against the new long term aim. This might be squeezed in future, anyway, with greater international competition coming in to country.