December 11, 2010
Topps Company Inventory
Topps Company has been in business for many years. They are split in two sections confectionary and entertainment. They are doing some restructuring to improve their bottom line. In the following paragraphs a discussion on their inventory turnover ratio, how the management of the inventory is working and the cost flow method used in their inventory.
Inventory turnover ratio is the cost of sales divided by ending inventory. There are other versions of this equation. Average inventory may be used instead of ending inventory to help compensate for seasonal sales. Sales instead of Cost of sales may also be used in the equation. The variables will only change the factors slightly but will still give and accurate account. The turnover ratio is used to find the number of times an inventory is turnover. This means the number of times the inventory is sold out and must be replaced with new inventory. (Investopedia ULC, 2010) The higher this number the better off the company is. Holding high inventories can signal trouble for the company should the prices drop. The company has made an investment that has a zero rate of return if the inventory is not being turned over. Topps Company had a turnover ratio of 5.38 in 2006 and 5.74 in 2005.
Average days to sell are obtained from using the number of days in a year 365 divided by the turnover ratio. Average days to sell may also be referred to as Age of inventory. This is the number of days it takes a company to sell a product that is currently in inventory. (Investopedia ULC, 2010) This is another way to decide if products are sitting too long in inventory. There may be a case of ineffective buying or other issues that can cause long or excessive Average days to sell. The Average day to sell or age of inventory for 2006 was 67.84 and 63.59 for 2005. This means in 2006 it took... [continues]
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