Question 19Q - Intermediate Accounting (Kieso)

Question

Of what significance is inventory turnover to a retail store?

Step-by-Step Solution

Answer

Inventory turnover indicates the number of times the company's average inventory is converted into sales in the given period. 

Definition of inventories

Inventory turnover is the financial ratio, which is measured as the ratio of the cost of goods sold by the business and the average inventory of the business. Average inventory is determined by adding the beginning and ending inventory and dividing them by two. 

Inventory turnover formula

$Inventory Turnover=\frac{Cost of Goods sold}{Average Inventory}$