Multiple Choice
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 company's average days in inventory ratio?
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14. Financial Statement Analysis
Ratios: Average Days in Inventory
Multiple Choice
Average days in inventory (days in inventory) is calculated by dividing which of the following?
A
Average inventory by net sales per day
B
Cost of goods sold by average inventory
C
Net sales by average inventory
D
Average inventory by cost of goods sold per day
Verified step by step guidance1
Understand that 'Average days in inventory' measures how many days, on average, inventory is held before being sold.
Recall the formula for Average days in inventory: it is calculated by dividing the average inventory by the cost of goods sold per day.
Express the formula mathematically as: \(\text{Average Days in Inventory} = \frac{\text{Average Inventory}}{\text{Cost of Goods Sold per Day}}\).
Calculate Cost of Goods Sold per Day by dividing the annual Cost of Goods Sold (COGS) by the number of days in the period (usually 365 days): \(\text{COGS per Day} = \frac{\text{COGS}}{365}\).
Finally, plug the values into the formula to find the average days inventory is held.
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