Given COGS of $600 and average inventory of $150, what is the inventory turnover ratio?

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Study for the Finance and Investment Challenge Test. Approaches include flashcards and multiple-choice questions with hints and explanations. Ready yourself to ace the exam!

Multiple Choice

Given COGS of $600 and average inventory of $150, what is the inventory turnover ratio?

Explanation:
Inventory turnover measures how many times a company sells and replaces its stock over a period. It is calculated by dividing cost of goods sold by the average inventory. With COGS of 600 and average inventory of 150, the calculation is 600 ÷ 150 = 4.0. So the inventory turns over four times during the period. A higher turnover suggests faster inventory movement and potentially lower holding costs, while using average inventory helps smooth out seasonal fluctuations in stock levels.

Inventory turnover measures how many times a company sells and replaces its stock over a period. It is calculated by dividing cost of goods sold by the average inventory. With COGS of 600 and average inventory of 150, the calculation is 600 ÷ 150 = 4.0. So the inventory turns over four times during the period. A higher turnover suggests faster inventory movement and potentially lower holding costs, while using average inventory helps smooth out seasonal fluctuations in stock levels.

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