The inventory turnover ratio is calculated as
A) cost of goods sold divided by average inventory.
B) average inventory divided by cost of goods sold.
C) cost of goods sold times average inventory.
D) average assets divided by cost of goods sold.

Question

Quizplus · Accepted Answer

The inventory turnover ratio is calculated by dividing the cost of goods sold by average inventory. This ratio measures how efficiently a company is managing its inventory by showing how many times inventory is sold and replaced in a given period. A higher ratio indicates that inventory is being sold quickly, while a lower ratio indicates that inventory is not selling as quickly and may be sitting on the shelves for longer periods of time.

The Inventory Turnover Ratio Is Calculated as