Table of contents

1. Introduction to Accounting1h 21m
2. Transaction Analysis1h 13m
3. Accrual Accounting Concepts2h 38m
4. Merchandising Operations2h 30m
5. Inventory1h 55m
6. Internal Controls and Reporting Cash1h 16m
7. Receivables and Investments3h 8m
8. Long Lived Assets5h 1m
9. Current Liabilities2h 19m
10. Time Value of Money1h 23m
- Time Value of Money Equations
  35m
- Using Time Value of Money Tables
  47m
11. Long Term Liabilities2h 45m
12. Stockholders' Equity2h 15m
13. Statement of Cash Flows2h 24m
14. Financial Statement Analysis5h 25m
15. GAAP vs IFRS56m

14. Financial Statement Analysis

Ratios: Inventory Turnover

Financial Accounting

14. Financial Statement Analysis

Ratios: Inventory Turnover

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Multiple Choice

Which ratio can provide an indication of the salability of a company's products?

Gross Profit Margin

Current Ratio

Debt-to-Equity Ratio

Inventory Turnover Ratio

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Verified step by step guidance

Understand the concept of the Inventory Turnover Ratio: This ratio measures how efficiently a company sells and replaces its inventory over a specific period. It provides insight into the salability of a company's products.

Learn the formula for Inventory Turnover Ratio: The formula is \( \text{Inventory Turnover Ratio} = \frac{\text{Cost of Goods Sold (COGS)}}{\text{Average Inventory}} \). This helps determine how many times inventory is sold and replaced during a period.

Identify the components needed: To calculate the Inventory Turnover Ratio, you need the Cost of Goods Sold (COGS) from the income statement and the Average Inventory, which is typically calculated as \( \text{Average Inventory} = \frac{\text{Beginning Inventory} + \text{Ending Inventory}}{2} \).

Interpret the result: A higher Inventory Turnover Ratio indicates that the company is selling its inventory quickly, which is a positive sign of product salability. Conversely, a lower ratio may suggest slow-moving inventory or potential issues with product demand.

Compare with industry benchmarks: To fully understand the salability of a company's products, compare the calculated Inventory Turnover Ratio with industry averages or competitors' ratios to assess relative performance.