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 measures the number of dollars of sales produced per dollar of inventory?

Inventory Turnover Ratio

Debt-to-Equity Ratio

Current Ratio

Gross Profit Margin

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Verified step by step guidance

Step 1: Understand the concept of the Inventory Turnover Ratio. It measures how efficiently a company uses its inventory to generate sales. The formula is:

\frac{Cost of Goods Sold}{Average Inventory}

Step 2: Compare the Inventory Turnover Ratio to the other options provided. The Debt-to-Equity Ratio measures financial leverage, the Current Ratio measures liquidity, and the Gross Profit Margin measures profitability. None of these directly relate to sales per dollar of inventory.

Step 3: Recognize that the Inventory Turnover Ratio specifically addresses the relationship between sales and inventory, making it the correct choice for this question.

Step 4: Note that the Inventory Turnover Ratio helps businesses understand how quickly inventory is sold and replaced, which is crucial for managing stock levels and operational efficiency.

Step 5: Conclude that the Inventory Turnover Ratio is the correct answer because it directly measures the number of dollars of sales produced per dollar of inventory.