Concept Introduction:
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:
Note: Average inventory is calculated with the help of following formula:
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:
To Choose:
The measure useful in evaluating efficiency in the management of inventories.
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Survey of Accounting (Accounting I)
- What is the effect on the current period income statement and the balance sheet when inventories are written down using the lower of cost or market method? What is the effect on future period income statements and balance sheets?arrow_forwardMAKE A BASIS AND DISCUSSION ON THE EFFICIENCY RATIO OF NESTLE (ASSET TURNOVER, INVENTORY TURNOVER, RECEIVABLES TURNOVER, AND AVERAGE COLLECTION PERIOD (DAYS).arrow_forwardWhich of the following is an asset management ratio? a) Times interest earned b) Leverage c) Inventory turnover d) Current ratioarrow_forward
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- 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 ratioarrow_forwardWhat does the Total-Assets-Turnover Ratio measure?arrow_forwardOptions I have for denominator are - average accounts receivable, net average total assets cost of goods sold current assets current liabilities interest expense net salesarrow_forward
- A. Which of the following is most closely associated with the cost of using assets? a. Asset utilization b. Sales revenue c. Proportion of debt and equity d. Average price B. Which of the following is most closely associated with the return on management’s use of assets? a. Cost of capital b. Mix of equity types c. Prime lending rate d. # of products soldarrow_forwardThe accounts receivable turnover and inventory turnover are used to analyze long-term solvency. profitability. liquidity. O leverage.arrow_forwardWhat is Return on Assets? How do you calculate Inventory Turnover and The Number of Days' Sales in Inventory?arrow_forward
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