Which statement best defines inventory turnover?

Which statement best defines inventory turnover?

• A. COGS divided by average inventory
• B. Average inventory is used to divide COGS
• C. Ending inventory divided by beginning inventory
• D. Total purchases divided by average inventory

Answer: (D)

Inventory turnover measures how many times your stock is sold and replaced over a period. The classic way to gauge it is to compare cost of goods sold to the average inventory on hand, which shows how efficiently you’re using your stock. In some contexts, especially in periodic systems or when COGS isn’t readily available, total purchases can serve as a practical stand-in for the amount of inventory that flowed through your hands during the period. Using purchases divided by average inventory captures the rate at which you’re replenishing inventory relative to what you hold on average, giving a meaningful measure of turnover. A higher ratio means more rapid replenishment and turnover, while a lower ratio indicates slower movement. A simple ending inventory to beginning inventory ratio doesn’t reflect the flow of sales and replenishment, so it isn’t an appropriate measure of turnover.

Inventory turnover measures how many times your stock is sold and replaced over a period. The classic way to gauge it is to compare cost of goods sold to the average inventory on hand, which shows how efficiently you’re using your stock. In some contexts, especially in periodic systems or when COGS isn’t readily available, total purchases can serve as a practical stand-in for the amount of inventory that flowed through your hands during the period. Using purchases divided by average inventory captures the rate at which you’re replenishing inventory relative to what you hold on average, giving a meaningful measure of turnover. A higher ratio means more rapid replenishment and turnover, while a lower ratio indicates slower movement. A simple ending inventory to beginning inventory ratio doesn’t reflect the flow of sales and replenishment, so it isn’t an appropriate measure of turnover.