Bowa Construction's days sales outstanding is 50 days (on a 365-day basis). The company's accounts receivable equal $100 million and its balance sheet shows inventory equal to $125 million. What is the company's inventory turnover ratio? (Hint: start by finding total sales using DSO equation: DSO = Accounts Receivable / (sales/365) Select one: a. 5.84 b. 4.25 c. 3.33 d. 2.75 e. 7.25

a. 5.84

Explanation:

For computing the inventory tune over ratio first we have to find out the sales amount by applying the days sales equation which is shown below:

Daily sales equation = Accounts Receivable : (sales : 365 days)

50 days = $100 million : (Sales : 365 days)

So sales is

= $100 million * 365 : 50 days

Sales = $730 million

And, we know that

Inventory turnover ratio = Sales : Inventory

= $730 million : $125 million

= 5.84 times

Hence, the inventory turnover ratio is 5.84 times