Wize University Introduction to Financial Accounting Textbook > Financial Statement Analysis
Inventory Turnover Ratio
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Inventory Turnover Ratio and Average Days to Sell
A company's ability to sell inventory is important and is a key indicator of liquidity. The faster inventory is turned into cash the more cash the business has to reinvest throughout its operations.
Inventory Turnover Ratio
- How many times per period inventory is sold
- Higher ratio means higher liquidity
Average Days to Sell
- Also called "Days in Inventory"
- How many days it takes, on average, to sell inventory
Wize Tip
To calculate the average days to sell using an inventory turnover ratio that is not annual, you should convert it to an annual ratio by multiplying.
Annual inventory turnover ratio:
Quarterly inventory turnover x 4
Monthly inventory turnover x 12
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Example: Inventory Turnover Ratio and Average Days to Sell
Calculate the inventory turnover ratio for the year 2019 and interpret the result.
Practice: Inventory Turnover and Average Days in Inventory
Compute the inventory turnover ratio and average days in inventory for the year 2020. Do not round your work, round your final answer to 4 decimal places and enter you answer in decimal form.
