Calculate the gross profit ratio and the inventory turnover ratio for the fiscal year ended February 3, 2018. Compare Target’s ratios with the industry averages of 24.5% and 7.1 times. Determine whether Target’s ratios indicate the company is more/less profitable and sells its inventory more/less frequently compared to the industry average.
To calculate the gross profit ratio, you need to know the gross profit and net sales figure. The formula for the gross profit ratio is:
Gross Profit Ratio = (Gross Profit / Net Sales) * 100
To calculate the inventory turnover ratio, you need to know the cost of goods sold and the average inventory figure. The formula for the inventory turnover ratio is:
Inventory Turnover Ratio = Cost of Goods Sold / Average Inventory
To determine whether Target’s ratios indicate the company is more or less profitable and sells its inventory more or less frequently compared to the industry average, you will need to compare Target’s ratios with the industry averages of 24.5% and 7.1 times.
To obtain the necessary data for the calculations, you can refer to Target's financial statements or annual report for the fiscal year ended February 3, 2018. The gross profit and net sales figures can be found in the income statement, while the cost of goods sold and average inventory figures can be found in the company's balance sheet or management discussion and analysis section.
Once you have obtained the required data, you can calculate the gross profit ratio and the inventory turnover ratio using the formulas provided above.
After calculating Target's ratios, you can compare them with the industry averages. If Target's gross profit ratio is higher than 24.5% and its inventory turnover ratio is greater than 7.1 times, it indicates that Target is more profitable and sells its inventory more frequently compared to the industry average. Conversely, if Target's ratios are lower than the industry averages, it would indicate that Target is less profitable and has a lower inventory turnover compared to the industry average.