From the course: Corporate Financial Statement Analysis
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Examples: Harley and McDonald's
From the course: Corporate Financial Statement Analysis
Examples: Harley and McDonald's
- Okay, one of my favorite things in accounting is to take these two ratio, day sales and inventory and average collection period, and add them together. Together, they tell me a company's operating cycle. Again, an operating cycle is how long from when we buy the inventory till we collect the cash associated with selling that inventory. We just went through how these numbers are computed. Let's look at a couple of companies that we're all familiar with, and see if those numbers make sense, given what we know about the companies. Let's start with McDonald's. How long does their food, the stuff we eat, sit with the company before it's sold to us. Well, it turns out we can calculate that. Remember, we first compute our inventory turnover measure by dividing cost of sales by our average inventory. For McDonald's, their inventory turnover's 57. In other words, McDonald's turns their inventory over 57 times a year. Well, how many days is that? Well, we simply divide 57 into 365 days to get…
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