The Importance of Understanding Financial Ratios in Inventory Management
The financial ratio days' sales in inventory is measured as:
Days' sales in inventory is a financial ratio that measures the average number of days it takes a company to sell its inventory. It is calculated by dividing the number of days in a period (usually 365) by the inventory turnover ratio. The inventory turnover ratio is calculated by dividing the cost of goods sold by the average inventory balance.
The formula for days' sales in inventory is:
Days' sales in inventory = (365 days) / inventory turnover ratio
Therefore, option A, 365 days divided by the inventory turnover, is the correct answer.
The financial ratio days' sales in inventory is measured as: A. 365 days divided by the inventory turnover. B. inventory plus cost of goods sold, divided by 365 days. C. inventory turnover plus 365 days. D. 365 days divided by the inventory. E. inventory times 365 days.
Final answer: The financial ratio days' sales in inventory is measured as 365 days divided by the inventory turnover. Explanation: The financial ratio days' sales in inventory is measured as 365 days divided by the inventory turnover. This ratio helps measure how efficiently a company manages its inventory. By dividing the number of days in a year by the inventory turnover, we can determine how long it takes for a company to sell its inventory. Inventory turnover measures how efficiently a company uses its inventory by dividing the cost of goods sold by the average inventory value during the period. Inventory turnover ratios are only useful for comparing similar companies, and are particularly important for retailers. A relatively low inventory turnover ratio may be a sign of weak sales or excess inventory, while a higher ratio signals strong sales but may also indicate inadequate inventory stocking. Accounting policies, rapid changes in costs, and seasonal factors may distort inventory turnover comparisons.