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Ask A CPA - Financial Statements

What Is The Inventory Turnover Activity Ratio ?

This ratio illustrates how many times your initial inventory is replaced in a year. Cost of Goods Sold, divided by Average Inventory = IT Ratio. Also, Days in the year, divided by the Inventory Turnover Ratio = Number of days in Inventory Ratio. Faster turnovers are viewed as a positive trend. The result is meaningful only when compared to other businesses in the same industry or the same business' past inventory turnover.

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