Deciphering Financial Statements (Circle K)
Circle K was once one of the largest convenience store chains in the United States. Circle K separated its products into two major categories: gasoline and merchandise (Twinkies, beef jerky, soda pop, etc.). Selected financial statement data for the year ended April 30, 1994, follow.
Cost of goods sold
1. Compute gross profit percentage for both gasoline and merchandise. Given these numbers, what do you think the attitude of convenience stores is toward automatic pump payment systems that eliminate the need to go into the store to pay for gas?
2. Compute inventory turnover (based on end-of-year inventory) for both gasoline and merchandise.
3. Compute number of days’ sales in inventory for both gasoline and merchandise. Why do you think the number of days’ sales in gasoline inventory is so much lower than for merchandise?
Selected Circle K financial statement data for the years 1988 and 1993 follow. All numbers are in millions of dollars.
Cost of goods sold:
For 1994, Circle K had total sales of $3,272.8. Purchases for 1994 were $2,554.0.
4. Which set of numbers—1988 or 1993—is likely to give a better estimate of the 1994 gross profit percentage? Explain.
5. Using the gross profit method, estimate Circle K’s inventory as of the end of 1994.