Benchmarking Thor Industries' Inventory Management: A Financial Report

This report provides a comprehensive analysis of Thor Industries' inventory management from 2006 to 2008, examining its business strategy, financial performance, and inventory accounting methods. The report compares Thor Industries' performance with that of Winnebago Industries and Skyline Corporation, focusing on growth, profitability, asset management, and cash flow. It delves into the company's inventory management practices, including the use of LIFO and the potential impact of FIFO, and calculates the company’s income before tax using FIFO and LIFO methods. The analysis also assesses the efficiency of Thor Industries' inventory turnover compared to its competitors. The conclusion highlights key findings regarding stock prices, cash flow, and liquidity, as well as the company's inventory efficiency relative to its peers.

Running head: THOR’S INVENTORY MANAGEMENT
THOR’S INVENTORY MANAGEMENT
Name of the Student
Name of the University
Author Note

1
THOR’S INVENTORY MANAGEMENT
Executive Summary
This report aims at studying and discussing the case study based on Thor Industries to evaluate
its overall performance and compare the results of three years 2006-2008 and also with the other
two – Winnebago Industries and Skyline Corporations.

2
THOR’S INVENTORY MANAGEMENT
Table of Contents
Introduction......................................................................................................................................3
Business and strategy...................................................................................................................3
Discussion........................................................................................................................................3
Growth, Profitability, Asset management:..................................................................................3
Cash Flow Performance:..............................................................................................................4
Inventory Management:...............................................................................................................5
Conclusion.......................................................................................................................................7
Bibliography....................................................................................................................................8

3
THOR’S INVENTORY MANAGEMENT
Introduction
The report discusses Thor’s business, its strategy, financial performance, and how it
manages its inventory. The efficiency and effectiveness of inventory’s accounting and
measurement is identified in comparison with the other two companies – Winnebago Industries,
and Skyline Corporation. The analysis is based on the given case study.
Business and strategy
Thor Industries Inc was established in North America in 1980 and was the largest
producer of recreation vehicles. The company extended its operations and thus started producing
and selling in Canada and the US as well. They sold a wide range of recreation vehicles along
with interrelated parts and accessories. The vehicles include conventional travel trailers, Class A
and C motorhomes and park models, and fifth wheels.
The company’s market share in the US, Canada, was 37% for small and medium-sized
bus market. The primary factors as competitive were quality, delivery, and price as well.
According to the industry and company analysis, the prospects depended largely on a turnaround
in the economy and prices.
Discussion
Growth, Profitability, Asset management:
The company’s stock prices shown an increase in 2006 and were at $45 due to a high rise
in sales, which was more than $3billion. But in 2008 the prices showed a decrease, and during
the year it went to lowest that was $12.21. The analysis shows that the performance and growth
during 2008 fell down and were the weakest. The net profit of the company also showed a
decline from $163405 in 2006 to $92706 in 2008. The company’s total assets were $996562 in

4
THOR’S INVENTORY MANAGEMENT
2008, which was $1059297 in 2007. The leverage of the company can be determined by the
debt-equity ratio as follows:
Particulars 2008 2007 2006
EBT (a) 152407 196860 256111
PBT + Interest(b) 153722 197634 257359
Leverage (a/b) .9914 .9960 .9951
The decline in leverage represents the decrease in financial performance by evaluating
profits. The liquidity of the organization from 2006-2008 can be assessed as follows:
Particulars 2007 2008
Current assets (a) 705,528 527,920
Current liabilities (b) 277,199 248,416
Current ratio (a/b) 2.55 2.13
This shows that the liquidity performance of company is good and can be examined
through the current ratio, and they are able to pay their current liabilities with their available
current assets. Winnebago’s day inventory is 71 days, whereas Thor’s is 24 days, a lower day
sales of the stock is ideal since it indicates that it will require fewer days to convert inventory
into cash.
Cash Flow Performance:
The cash flow from operating activities shows a decline as and when compared with 2006
and 2007. The cash provided in operating activities was low when compared to previous years
due to fewer profits earned by Thor, and there was no such sale of trading investments. Cash
flow from Investing activities was better in comparison with previous performances, and there

5
THOR’S INVENTORY MANAGEMENT
was cash inflow from investing activities of – $32,566. There was the purchase of PPE, and sale
of “available for sale” investment. There was cash outflow from financing activities of $137749
since the company paid cash dividends, and there was also purchase of common stock, which is
held as treasury shares. The cash flow from operating, investing, and financing activities from
2006-2008 are as follows to draw the final comparison:
Particulars 2006 2007 2008
Cash flow from Operating 137,259.00 232,753.00 122,108.00
Cash flow from Investing (29,903.00) (188,141.00) 32,566.00
Cash flow from Financing (75,645.00) (69,843.00) (137,749.00)
Effects of exchange rate 829.00 984.00 806.00
Net increase/ decrease in cash 32,540.00 (24,247.00) 17,731.00
The cash flow performance is better in comparison to 2007 but less than 2006’s
performance.
Inventory Management:
The organization uses LIFO to manage and measure inventory, and its efficiency is
determined by comparing days inventory turnover with the other two companies.
(1) The company’s Income before tax, if they use FIFO, is as follows:
1. Calculation showing Income before tax (2008 - FIFO)
Particulars LIFO FIFO Increase/ Decrease
COGS 2,318,254 2,314,393 3,861
Income before tax 152,407 156,268

6
THOR’S INVENTORY MANAGEMENT
The company has used LIFO, and then COGS will reduce by 3861.
Working Note:
Particulars Inventories
using LIFO
Excess of FIFO cost
over LIFO
Inventories
using FIFO COGS (LIFO) COGS
after FIFO
Opening (2007) 168,980 25,221 194,201
Closing (2008) 152,582 29,082 181,664 2,318,254 2,314,393
Difference in
stock 3,861
(2) The company will save 1,244 dollars in tax as the Income before tax rises due to FIFO, but
since they follow LIFO, they had to pay less tax.
(3) The comparison of days inventory is as follows:
(4) The closing inventory will be changed if there is a change in days inventory and which will
cause a change in cash flow from operations.

7
THOR’S INVENTORY MANAGEMENT
Conclusion
However, it is to be concluded that the stock price shows a decline, but cash flow and
liquidity performance were adequate. The company’s day inventory also shows efficiency as
compared to the other two organizations.

8
THOR’S INVENTORY MANAGEMENT
Bibliography
Coulon, Y. (2020). Efficiency Ratios. In Rational Investing with Ratios (pp. 31-45). Palgrave
Pivot, Cham.
Group, T. (2020). Thor Industries - Owner of Leading RV Manufacturers. Retrieved 18 March
2020, from https://www.thorindustries.com/
Muller, M. (2019). Essentials of inventory management. HarperCollins Leadership.
Winnebagoind.com. (2020). Winnebago | RVs, Motorhomes, Recreational Vehicles. Retrieved
18 March 2020, from https://winnebagoind.com/