BUSINESS ADMINISTRATION
FINANCIAL MANAGEMENT
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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What is the formula for Merchandise Inventory Turnover Ratio?
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Average Merchandise Inventory/Cost of Goods Sold
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Cost of Goods Sold/Merchandise Inventory
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Merchandise Inventory/Cost of Goods Sold
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Cost of Goods Sold/Average Merchandise Inventory
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Explanation:
Detailed explanation-1: -The inventory turnover ratio is calculated by dividing the cost of goods by average inventory for the same period. A higher ratio tends to point to strong sales and a lower one to weak sales.
Detailed explanation-2: -The average inventory formula is: Average inventory = (Beginning inventory + Ending inventory) / 2.
Detailed explanation-3: -You can calculate the inventory turnover ratio by dividing the inventory days ratio by 365 and flipping the ratio. In this example, inventory turnover ratio = 1 / (73/365) = 5. This means the company can sell and replace its stock of goods five times a year.
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