The average number of times a company's inventory is sold during an accounting period, calculated by dividing cost of goods sold by the average inventory balance, is the:
A) Accounts receivable turnover.
B) Inventory turnover.
C) Days' sales uncollected.
D) Current ratio.
E) Price earnings ratio.

Question

Quizplus · Accepted Answer

The inventory turnover ratio measures how efficiently a company is managing its inventory. It is calculated by dividing the cost of goods sold by the average inventory balance. This ratio indicates how many times a company's inventory was sold and replaced during a period, and it is important because it can help identify whether a company is overstocking or understocking its inventory.

The Average Number of Times a Company's Inventory Is Sold