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CFA Level I · CFA Level I Exam · Introduction to Financial Statement Modeling

A company forecasts revenue of 800 million for next year. Its days of inventory on hand is expected to be 45 days, based on COGS of 480 million. Using a 365-day year, forecast ending inventory is closest to:

Ending inventory is about 59 million. Days of inventory on hand is applied to cost of goods sold, so 480 million times 45 divided by 365 equals roughly 59 million. Using revenue as the base would wrongly overstate inventory at about 98 million.

  1. A40 million
  2. B59 millionCorrect
  3. C98 million

Explanation

Inventory = COGS x days/365 = 480 x 45/365 = 59.18 million. Using revenue of 800 instead of COGS gives 98.6 million, which is the wrong base. Using 480/365 without multiplying fully, or 30 days, would give around 40.

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