Final answer:
The inventory turnover is computed by dividing the cost of goods sold by the average inventory. It helps measure the efficiency of inventory management.
Step-by-step explanation:
The inventory turnover is computed by dividing the cost of goods sold by the average inventory. Inventory turnover is a financial ratio that measures the number of times inventory is sold or used in a given period. It is a measure of how efficiently a company is managing its inventory.
For example, if a company has a cost of goods sold of $100,000 and an average inventory of $20,000, the inventory turnover would be calculated as $100,000 / $20,000 = 5 times. This means that the company sells or uses its inventory 5 times during the given period.
Inventory turnover is an important metric for businesses as it helps them understand the efficiency of their inventory management and identify areas for improvement. A higher inventory turnover generally indicates better sales and inventory management.