Inventory Turnover Ratio = $97,000.00 / $36,500.00 Inventory Turnover Ratio = 2.66 As the inventory turnover ratio is greater than 1, it implies efficient management of inventory in the company.
You can calculate the inventory turnover ratio by dividing the inventory days ratio by 365 and flipping the ratio. In this example, inventory turnover ratio = 1 / (73/365) = 5. This means the company can sell and replace its stock of goods five times a year. Source: CFI financial modeling courses.
1 Inventory Turnover Ratio = Cost of Goods Sold/ Average Inventory 2 Inventory turnover ratio = $235,000 ÷ $22,500 3 Inventory turnover ratio = 10.44