Equity Valuation and Analysis - Mark Moore

preferred, in that this ratio shows the number of days a product sits on a company’s
shelf before it is sold.
DAYS SUPPLIES INVENTORY
2002 2003 2004 2005 2006
DOW 64.59 52.46 52.84 50.72 53.25
DD 96.21 85.52 78.93 83.12 91.63
LYO 43.33 35.27 108.15 36.67 41.7
HUN 84.62 59.88 54.75 52.73 61.08
INDUSTRY 72.19 58.28 73.67 55.81 61.92
120
Days Supplies Inventory
100
80
60
40
20
DOW
DD
LYO
HUN
0
2002 2003 2004 2005 2006
The longer inventory sits on a company’s shelves, the longer it takes for a
company to collect money on those products. Like its days of receivables turnover,
Dow’s time of turns are well under the five year industry average of 64.37 days. With
an overall decrease with inventory on Dow’s shelves, it looks as though Dow is trying to
improve its inventory techniques to try and retain quicker cash and more room for new
inventories.
Receivables Turnover: (Sales/Accounts Receivables)
The Receivables Turnover ratio can be calculated by taking the Net Sales (A.K.A.
Revenue) for that year and dividing it over the Accounts Receivables which can be
located at the top of the balance sheet under current liabilities. This ratio measures
Dow Chemical Analysis Page 64