Which formula expresses ITOR?

Which formula expresses ITOR?

• A. = COGS / Average Inventory
• B. = 365 / ITOR
• C. = ITOR / COGS
• D. = Days of Supply / Average Inventory

Answer: (A)

Inventory turnover measures how often you sell and replace your stock during a period. The best way to express ITOR is by dividing cost of goods sold by average inventory for that period. COGS reflects the cost of items actually sold, while average inventory (often computed as (beginning inventory + ending inventory) / 2) smooths stock levels to give a representative picture of what you had on hand. This ratio directly conveys how many times you can turn your stock into sales in the period; a higher number means faster movement of inventory. For example, if COGS is 600,000 and average inventory is 120,000, ITOR is 5, meaning the inventory was turned over five times. Other forms don’t express ITOR itself. Using 365 divided by ITOR gives a time-based metric (days of inventory on hand) rather than the turnover rate. Dividing ITOR by COGS removes the direct link to how efficiently stock is turned, yielding a nonsensical or non-useful figure. And mixing Days of Supply with Average Inventory isn’t ITOR and combines different concepts, so it doesn’t represent turnover.

Inventory turnover measures how often you sell and replace your stock during a period. The best way to express ITOR is by dividing cost of goods sold by average inventory for that period. COGS reflects the cost of items actually sold, while average inventory (often computed as (beginning inventory + ending inventory) / 2) smooths stock levels to give a representative picture of what you had on hand. This ratio directly conveys how many times you can turn your stock into sales in the period; a higher number means faster movement of inventory. For example, if COGS is 600,000 and average inventory is 120,000, ITOR is 5, meaning the inventory was turned over five times.

Other forms don’t express ITOR itself. Using 365 divided by ITOR gives a time-based metric (days of inventory on hand) rather than the turnover rate. Dividing ITOR by COGS removes the direct link to how efficiently stock is turned, yielding a nonsensical or non-useful figure. And mixing Days of Supply with Average Inventory isn’t ITOR and combines different concepts, so it doesn’t represent turnover.