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

Question

Quizplus · Accepted Answer

Dividing the ending inventory by the cost of goods sold gives the inventory turnover ratio, and multiplying the result by 365 gives the days' sales in inventory. This ratio measures how long it takes for a company to sell its inventory. The higher the ratio or the lower the days' sales in inventory, the better it is for the company.

Dividing Ending Inventory by Cost of Goods Sold and Multiplying