Manufacturing Inventory Turnover Ratios

Tractor Supply Company has been in operation for more than seventy-five years. During this time, it has specialized in a market that no other company has succeeded in as they have. Being in a unique market makes it difficult to compare them to any other retailers financially. Looking at their financial ratios allows us to have a better understanding of have financially secure they are. Comparing one year to the next is one way of knowing if they are growing financially or declining. Since their financial ratios are good indicators of being strong and their liquidity ratios have increased from the previous year, there are areas the need to be worked on but they are headed in the right direction. Charles E. Schmidt Sr. founded Tractor Supply

The higher the ratio, the more times the inventory was sold. Typically, this means the more money that the company was able to make. Tractor Supply Company reported their cost of goods sold to be $4,083,333,000 and their average inventory was $1,199,912,500. This gives them a ratio of 3.40. On average, their inventory was acquired and sold 3.4 times in the year. It took an average of 107 days for their inventory to sell. This was a slight decrease from the previous year, which was 108 days or 3.37 (Libby et al., 2011).
The return on equity ratio is used to show how much money the stockholders earn on their investments. They expect to make more money if they invest more money. This is computed by taking the net income and dividing it by the average stockholders’ equity. They reported a net income of $410,395,000 and the average stockholders’ equity is $1,343,427,500. When calculated, the return on equity ratio is 31 percent. The previous year return on equity was 29 percent. This increase indicates that the money invested did indeed increase the profit of the stockholders (Libby et al.,

Most areas appear to be going in the right direction, but some areas still need to be improved on. The cash ratio is still low and needs to be brought up. Having a little more cash on hand would be helpful in the event that the economy took a downward turn. Creditors are still expecting to be paid whether they have the cash to pay them or not. One way to do this would be increasing the inventory turnover. This would generate cash at a faster rate, therefore increasing the cash on hand. This would also bring up the quick ratio to where it needs to be. The increase in debt-to-equity is a little concerning. This ratio increased from 57 cents to 70 cents. The cause for concern is that they are becoming more dependent on creditors. If more of the stockholders’ equity was used to offset the difference, this might bring the debt-to-equity back down. The current price of their stock is $74.25. Over the last five years, the price of their stock on average has been going up. Ultimately, I believe Tractor Supply Company to be strong financially and a good long-term