![]() ![]() Using the second method: If a company has an annual average inventory value of 100,000 and the cost of goods sold. Average inventory represents the average amount of inventory over two or more accounting periods. The formula is as follows: Inventory Turnover ratio Cost of Goods Sold (CoGS)/Average Inventory. Doing both of these requires tightly managed and carefully planned systems. Most companies consider a turnover ratio between six and 12 to be desirable. The inventory turnover ratio is calculated using a mathematical equation. Having a quick cash conversion cycle shows that management has devised ways to reduce time wasted by the business by keeping items in inventory for a short time and getting payment for goods quickly.
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