Inventory Turns of Microsoft Company

InventoryTurns of Microsoft Company

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InventoryTurns of Microsoft Company

Indefinition, inventory turns simply means the number of times acompany’s inventory cycles per year.

Inthe calculation, we divide the cost of goods sold in a given year bythe average inventories in the same year. For instance, assume in acertain year, a company’s cost of goods sold amount to $4,400,000and the average cost of inventories is $100,000, inventory turnoverratio is equivalent to

$4,400,000/$100,000=4.4

Myresearch is based on Microsoft Company. This is a softwaremanufacturing company that has achieved best performance incomparison to other software manufacturing companies such asInternational Business Machine (IBM), Oracle (ORCL) andHewlett-Packard (Hp)

Belowis a comparison of Microsoft’s turns to IBM, ORCL and Hp turns

Microsoft

Itsaverage inventory that ended in September 2015 summed to $3,359million while the cost of goods sold was $7,207 million hence itturns was 2.15.This is the number of turns ratio the company hascurrently. The figure has increased from 31.99 to 42.53

IBM

ForIBM, the cost of goods sold by September 2015 summed to $9,844million and the average inventory was $ 1, 62 million. This resultedin a return ratio of 5.59. Comparing the IBM’s inventory returns toMicrosoft’s, it is less $3,197.

ORCL

ForORCL by August 2015, the cost of goods sold was $1,850million and theaverage inventory was $ 283 million which resulted in returning ratioof 6.55.In comparison to Microsoft, its inventory is $3,076.

HP

Thehp’s cost of goods that had been sold by July 2015 was $ 19,317million while its average inventory was $ 6,464 million. This gave aninventory turnover of 2.99.

Microsoftis still the leading Company software manufacturing as we can seefrom the comparison above.

Everyfirm’s management tends to strive to achieve optimal inventoryturns. This helps in effective utilization of the cash flows, maximumprofits realization, effective control of inventory and being able toachieve the needs of their customers.

Microsoft,in particular, has been able to achieve high turns throughimplementing several strategies described below

Increasinginventory demand

Thishas been effective for setting up strategic marketing plans and endedhence resulting in increased sales.

Thereview of the business pricing strategy

Thecompany introduced several pricing strategies such as giving itscustomers bonuses, allowing them to purchase regarding higherpurchase, providing delivery services and also allowing purchase withcredit cards which has enhanced a good relationship with theircustomers hence beating their competitors (IBM, ORCL, and HP)

Reviewingof the purchase prices regularly with suppliers

Thecompany has also been able to achieve high turns through requestingfor discounts when placing orders and engaging in bulk purchase ofraw materials required.

Highinventory returns can also give a firm competitive advantage such as

Bulkselling of goods and services

Afirm can make large volumes of sales than its competitors hencegaining high profits.

Cheaplabor

Thefirm can realize labor competitive advantage as compared to itscompetitors due to high returns, and this could help in havingquality goods and services due to having a wide scope of specializedskills.

Economyof advertisement

Muchmoney is spent on the advertisement by the firm but still ends upreceiving competitive advantage than its competitors since a largepool of customers becomes aware of the existence of their productshence making high profits due to increased volume of sales.

Overheadscharges

Afirm that has high inventory returns tends to enjoy the benefits ofincurring low costs because the costs incurred are easily covered upby high profits realized from the sales.

Largepool of customers

Dueto large inventory returns, the firm can realize a large number ofcustomers hence making high profits from the sales.

References

Brinkley,P. A., Dorval, T. L., Zwierzynski, T. M., &amp Gerenser, G. J.(1999). U.S.Patent No. 5,963,919.Washington, DC: U.S. Patent and Trademark Office.