What is inventory turnover and how is it calculated? Why is it important for a manager to track this ratio?
What will be an ideal response?
Inventory turnover is a financial ratio calculated by dividing the cost of goods sold in one year by the average value of the inventory. Inventory turnover is an indicator of how often a firm sells its inventory each year. The average inventory for all firms is about 9 times a year, but inventory turnover ratios vary greatly from one industry to another. The quickest way to improve inventory turnover is to order merchandise in smaller quantities at more frequent intervals. Managers can also compare inventory turnover in one period with an inventory turnover ratio in an earlier accounting period.
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a. True b. False Indicate whether the statement is true or false
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What will be an ideal response?