- Inventory Turnover = Cost of Goods Sold / Inventories
- This ratio allows us to see how many times the company’s inventory was renewed in relation to its sales during the year. That is, it is used to determine the speed with which the inventory was disposed of and replaced during the year. If we divide 365 (total days in the year) by this number, we find the number of days that the inventory remained in the company until it was sold.
- The ability of a company to sell its inventory quickly is an indication of how efficiently it operates.
- The higher the ratio, the more efficiently the company operates.
