Which ratio is calculated as cost of goods sold divided by average inventory?

Which ratio is calculated as cost of goods sold divided by average inventory? The inventory turnover ratio shows how many times inventory is sold or used during a period.

Its standard accounting formula is cost of goods sold divided by average inventory. Average inventory is commonly estimated as beginning inventory plus ending inventory, divided by two. Because cost of goods sold is recorded at cost, matching it with inventory valued at cost avoids comparing sales revenue at market price with stock at acquisition or production cost.

A high turnover can indicate brisk sales and efficient stock management, but it may also signal inventory levels that are too low and create shortages. A low turnover can point to overstocking, obsolete goods, weak demand, or costly storage. The right benchmark depends heavily on the industry; a supermarket normally turns stock faster than a car dealership.

The ratio is often converted into average days to sell inventory by dividing 365 by turnover. Some analysts use sales rather than cost of goods sold, especially for comparisons, so published figures should be checked for methodology.