   # What insights can be gained from inventory ratio analysis, such as inventory turnover ratio and number of days’ sales in inventory ratio? FindFindarrow_forward

### Principles of Accounting Volume 1

19th Edition
OpenStax
Publisher: OpenStax College
ISBN: 9781947172685

#### Solutions

Chapter
Section FindFindarrow_forward

### Principles of Accounting Volume 1

19th Edition
OpenStax
Publisher: OpenStax College
ISBN: 9781947172685
Chapter 10, Problem 15Q
Textbook Problem
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## What insights can be gained from inventory ratio analysis, such as inventory turnover ratio and number of days’ sales in inventory ratio?

To determine

Concept introduction:

Inventory Turnover Ratio:

Inventory Turnover Ratio measures the efficiency of the company in converting its inventory into sales. It is calculated by dividing the Cost of goods sold by Average inventory. The formula of the Inventory Turnover Ratio is as follows:

Inventory Turnover Ratio=Cost of goods soldAverage inventory

Note: Average inventory is calculated with the help of following formula:

Average inventory=(Beginning inventory + Ending inventory)2

Day’s sales in inventory:

Days sales in inventory represent the number of days the inventory waits for the sale. It is calculated using the following formula:

Day Sales in Inventory =  Inventory ×365Cost of Goods Sold

To indicate:

The usage of Inventory Turnover Ratio and Day’s sales in inventory ratio.

### Explanation of Solution

Inventory Turnover Ratio measures the efficiency of the company in converting its inventory into sales. It is calculated by dividing the Cost of goods sold by Average inventory.Day’s sales in inventory represent the number of days the inventory waits for the sale...

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