Which ratio is used to assess a company's efficiency in managing its inventory?
Practice Questions
Q1
Which ratio is used to assess a company's efficiency in managing its inventory?
Inventory Turnover Ratio
Current Ratio
Debt to Equity Ratio
Return on Equity
Questions & Step-by-Step Solutions
Which ratio is used to assess a company's efficiency in managing its inventory?
Step 1: Understand what inventory is. Inventory refers to the goods and materials a company holds for sale.
Step 2: Learn about the Inventory Turnover Ratio. This ratio shows how many times a company sells and replaces its inventory in a specific time period.
Step 3: Know the formula for the Inventory Turnover Ratio. It is calculated as: Inventory Turnover Ratio = Cost of Goods Sold (COGS) / Average Inventory.
Step 4: Realize that a higher ratio indicates better efficiency, meaning the company is selling its inventory quickly.
Step 5: Use this ratio to compare with industry standards or competitors to assess performance.
