Question

How long a company holds inventory before selling it can be measured by dividing cost of goods sold by the average inventory balance to determine the:

Answer 1

The Inventory Turnover Ratio, which can be calculated by dividing the cost of goods sold by the average inventory balance, can be used to measure how long a company keeps inventory before selling it.

Businesses may make better judgments in a range of areas, such as pricing, production, marketing, purchasing, and warehouse management, by measuring and calculating inventory turnover. In the end, the inventory turnover ratio measures how well the business makes sales from its inventory.

Inventory Turnover Ratio = Cost of Goods Sold / Avg. Inventory

Average inventory = (beginning inventory + ending inventory) / 2

The inventory turnover ratio calculates how frequently inventory is sold and replaced during a specific time frame.

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