Question

Based on the following data, what is the inventory turnover? Sales on account during year $400,000 Cost of goods sold during year 255,000 Accounts receivable, beginning of year 45,000 Accounts receivable, end of year 35,000 Inventory, beginning of year 90,000 Inventory, end of year 80,000

Answer 1

3 times

Step-by-step explanation:

Financial Statements depicts the financial position of a firm at a particular point of time or specified date. The users of financial statements use various types of analysis to understand or compare the current financial statements of the company to prior years or with those of the competitors.

‘Ratio Analysis’ is used to analyze the performance of a company. It is used to analyze the liquidity, profitability, solvency and operational efficiency of the company.

Given:

Cost of goods sold = $255,000

Beginning inventory = $90,000

Ending inventory = $80,000

Inventory turnover is the ratio of cost of goods sold to inventory receivable.

It can be calculated as:

Average inventory =
`(Beginning inventory + Ending inventory)/(2)`

Average inventory =
`(90,000 + 80,000)/(2)`

Average inventory =
`(170,000)/(2)`

Average inventory = $85,000

Inventory turnover ratio =
`(Net credit sales)/(Average inventory)`

Inventory turnover ratio =
`(255,000)/(85,000)`

Inventory turnover ratio = 3 times