Inventory turnover ratio

Inventory turnover ratio

Inventory turnover ratio is one of the Accounting Liquidity ratios, a financial ratio. This ratio measures the number of times, on average, the inventory is sold during the period. Its purpose is to measure the liquidity of the inventory. A popular variant of the Inventory turnover ratio is to convert it into an average days to sell the inventory in terms of days. Remember that the Inventory turnover ratio is figured as "turnover times" and the average days to sell the inventory is in "days".

* Inventory turnover ratio = Cost of goods sold / Average inventory [Weygandt, J. J., Kieso, D. E., & Kell, W. G. (1996). "Accounting Principles" (4th ed.). New York, Chichester, Brisbane, Toronto, Singapore: John Wiley & Sons, Inc. p. 801.]
* Average days to sell the inventory = 365 / Inventory Turnover Ratio [Weygandt, J. J., Kieso, D. E., & Kell, W. G. (1996). "Accounting Principles" (4th ed.). New York, Chichester, Brisbane, Toronto, Singapore: John Wiley & Sons, Inc. p. 802.]

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