Dividing ending inventory by cost of goods sold and multiplying the result by 365 is the:
A) Inventory turnover ratio.
B) Profit margin.
C) Days' sales in inventory.
D) Current ratio.
E) Total asset turnover.

Question

Quizplus · Accepted Answer

Dividing ending inventory by cost of goods sold gives the inventory turnover ratio. Multiplying it with 365 gives the number of days' sales in inventory, which measures the average number of days it takes for a company to sell its inventory. Therefore, the correct answer is option C, Days' sales in inventory.

Dividing Ending Inventory by Cost of Goods Sold and Multiplying