   Chapter 6, Problem 19DQ ### Cornerstones of Financial Accounti...

4th Edition
Jay Rich + 1 other
ISBN: 9781337690881

#### Solutions

Chapter
Section ### Cornerstones of Financial Accounti...

4th Edition
Jay Rich + 1 other
ISBN: 9781337690881
Textbook Problem
1 views

# What do the gross profit and inventory turnover ratios tell company management about inventory?

To determine

Concept introduction:

Gross Profit ratio:

Gross profit ratio is calculated by dividing the gross profit by sales. The formula to calculate the gross profit ration is as follows:

Gross Profit = Gross ProfitSales

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

To indicate:

The meaning of Gross Profit and inventory turnover ratio.

Explanation

Gross Profit ratio:

Gross profit ratio is calculated by dividing the gross profit by sales. The formula to calculate the gross profit ration is as follows:

Gross Profit = Gross ProfitSales

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

### Still sussing out bartleby?

Check out a sample textbook solution.

See a sample solution

#### The Solution to Your Study Problems

Bartleby provides explanations to thousands of textbook problems written by our experts, many with advanced degrees!

Get Started

#### What is inflation and what causes it?

Principles of Microeconomics (MindTap Course List)

#### What is management?

Foundations of Business (MindTap Course List)

#### Why is productivity important?

Principles of Economics (MindTap Course List)

#### What usually causes warpage in an aluminum cylin der head?

Automotive Technology: A Systems Approach (MindTap Course List)

#### What is outsourcing? How is it different from offshoring?

Principles of Information Systems (MindTap Course List)

#### Solve the following set of equations using the Gaussian method. x+3y=144x+y=1

Engineering Fundamentals: An Introduction to Engineering (MindTap Course List)

#### List six types of backups. Describe the three-generation backup policy.

Enhanced Discovering Computers 2017 (Shelly Cashman Series) (MindTap Course List) 