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 the Average inventory. The formula of the Inventory Turnover Ratio is as follows: I n v e n t o r y T u r n o v e r R a t i o = C o s t o f g o o d s s o l d A v e r a g e i n v e n t o r y Note: Average inventory is calculated with the help of following formula: A v e r a g e i n v e n t o r y = ( B e g i n n i n g i n v e n t o r y + E n d i n g i n v e n t o r y ) 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: D a y S a l e s i n I n v e n t o r y = I n v e n t o r y * 365 C o s t o f G o o d s S o l d To Choose: The measure useful in evaluating efficiency in the management of inventories.
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 the Average inventory. The formula of the Inventory Turnover Ratio is as follows: I n v e n t o r y T u r n o v e r R a t i o = C o s t o f g o o d s s o l d A v e r a g e i n v e n t o r y Note: Average inventory is calculated with the help of following formula: A v e r a g e i n v e n t o r y = ( B e g i n n i n g i n v e n t o r y + E n d i n g i n v e n t o r y ) 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: D a y S a l e s i n I n v e n t o r y = I n v e n t o r y * 365 C o s t o f G o o d s S o l d To Choose: The measure useful in evaluating efficiency in the management of inventories.
Solution Summary: The author explains that Inventory Turnover Ratio measures the efficiency of the company in converting its inventory into sales.
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 the Average inventory. The formula of the Inventory Turnover Ratio is as follows:
Which ratio is calculated to ascertain the efficiency of inventory management in terms of capital investment?
[A] stock velocity ratio
[B] debtors velocity ratio
[C] creditors velocity ratio
[D] working capital turnover ratio
Discuss the impact of the following ratios and usefulness to users of financial statements.
Gross profit Margin
Return on capital employed
Operating profit (PBIT) percentage
Asset turnover
Gearing ratio
Which of the following is an asset management ratio?
a) Times interest earned
b) Leverage
c) Inventory turnover
d) Current ratio
Chapter 9 Solutions
CengageNOWv2, 1 term Printed Access Card for Warren's Survey of Accounting, 8th