Multiple Choice
In financial statement analysis, what does the inventory turnover ratio primarily measure?
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14. Financial Statement Analysis
Ratios: Inventory Turnover
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ABC Company had \$200,000 in Net Sales and Gross Profit of \$80,000. If Inventory had a balance of \$60,000, what is the Inventory Turnover ratio?
A
1.33
B
2.00
C
3.33
D
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Verified step by step guidance1
Understand the formula for Inventory Turnover Ratio: Inventory Turnover Ratio = Cost of Goods Sold (COGS) / Average Inventory.
Identify the given values: Net Sales = \$200,000, Gross Profit = \$80,000, and Inventory = \$60,000.
Calculate the Cost of Goods Sold (COGS) using the formula: COGS = Net Sales - Gross Profit. Substitute the given values to find COGS.
Assume that the Inventory balance given is the average inventory for simplicity, as no beginning or ending inventory values are provided.
Substitute the calculated COGS and the given Inventory balance into the Inventory Turnover Ratio formula to find the ratio.
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