Mattel, Inc., designs, manufactures, and markets toy products worldwide. Mattel’s toys include Barbie® fashion dolls and accessories, Hot Wheels®, and Fisher-Price brands

Mattel, Inc., designs, manufactures, and markets toy products worldwide. Mattel’s toys include Barbie® fashion dolls and accessories, Hot Wheels®, and Fisher-Price brands. For a recent year, Mattel reported the following net cash flows from operating activities (in thousands):

First quarter ending March 31 $  (53,110)

Second quarter ending June 30 (187,663)

Third quarter ending September 3018,435

Fourth quarter ending December 31956,895

Explain why Mattel reported negative net cash flows from operating activities during the first and second quarters and a large positive cash flow for the fourth quarter, with overall net positive cash flow for the year.

Answer:

Toy manufacturers and retailers experience a seasonal trend in cash flows from operating activities. Mattel, Inc., experiences negative cash flows during the periods when merchandise is ordered and produced for the holiday season. Mattel, Inc., generates large positive cash flows during the holiday season, November–December. As a result, Mattel, Inc., reports overall positive net cash flows from operating activities for the year.

The following data (in millions) were taken from recent annual reports of Apple Inc., a manufacturer of personal computers and related products

The following data (in millions) were taken from recent annual reports of Apple Inc., a manufacturer of personal computers and related products, and Mattel Inc., a manufacturer of toys, including Barbie®, Hot Wheels®, and Disney Classics:

                                                     Apple | Mattel 

Cost of merchandise sold      $140,089 | $2,896

Inventory, end of year                  2,349 | 588

Inventory, beginning of the year  2,111 | 562

a. Determine the inventory turnover for Apple and Mattel. Round to one decimal place.

b. Would you expect Mattel’s inventory turnover to be higher or lower than Apple’s? Why?

Answer:

a. Apple: 62.8 {$140,089 ÷ [($2,349 + $2,111) ÷ 2]}

Mattel: 5.0 {$2,896 ÷ [($588 + $562) ÷ 2]}

b. Lower. Although Mattel’s business is seasonal, with most of its revenue generated during the major holidays, much of its nonholiday inventory may turn over very slowly. Apple, on the other hand, turns its inventory over very fast because it maintains a low inventory, which allows it to respond quickly to customer needs. In addition, Apple’s computer products can become obsolete quickly, so it cannot risk building large inventories.