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As three of Americas leading retailers Home Depot Nordstrom and Cold Water Creek are responsible for over 80 billion in annual sales Retail industry analysts look for commonalities in inventory management reporting in order to track companys ability to move inventory and maximize pricing strategies and avoid having to discount obsolescent inventory thus affecting profit Through analysis of a companys inventory management ratio outside investors and inside management can track the number of times each year a company turns its inventory Industries such as retail are extremely sensitive to inventory management as many retail products have short shelf lives due to cyclical inventory and technological advances Through an analysis of each companys inventory methodology it was discovered that all utilized the first in-first out FIFO method which values inventory by applying a cost-to-retail ratio to the ending inventorys retail value that are common among US retailers This paper explores three diverse retail businesses and their inventory methodologies The first Home Depot is a warehouse type building maintenance and home improvement store Second Nordstrom an upscale department store is popular for its high-end apparel and renowned customer service Lastly Cold Water Creek a womens apparel and accessory store that started with mail order has moved into retail outlets in the last three years Home Depot closed its 2004 fiscal year on January 30 2005 while both Nordstrom and Cold Water Creek closed their 2004 fiscal year January 29 2005 We examined the inventory costing method the motivation for the choice the inventory turnover ratio and the effect of the change in inventories on cash flow from operations Inventory Methods All three retail companies use the First-In-First-Out FIFO inventory method for its stores The FIFO method assumes that the earliest goods purchased are the first goods sold and the last goods purchased are left in ending inventory FIFO allocates the oldest unit costs to cost of goods sold and the newest unit costs to ending inventory Companies
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