Business Applications Case Using the average days to sell inventory ratio to make a lending decision
Carter’s Produce has applied for a loan and has agreed to use its inventory to collateralize the loan. The company currently has an inventory balance of $289,000. The cost of goods sold for the past year was $7,518,000. The average shelf life for the fruit that Carter sells is 10 days, after which time it begins to spoil and must be sold at drastically reduced prices to dispose of it rapidly. The company maintained steady sales over the past three years and expects to continue at current levels for the foreseeable future.
Based on your knowledge of inventory turnover, write a memo that describes the quality of the inventory as collateral for the loan.