Which equation represents the Inventory Ratio Turnover?

The Inventory Ratio Turnover is a measure that indicates how many times a company sells and replaces its inventory over a period, typically a year. This ratio is especially useful for assessing the efficiency of inventory management and sales performance.

The correct representation of Inventory Ratio Turnover is through the relationship of Cost of Goods Sold to Average Inventory. Specifically, this metric provides insight into how well a company is utilizing its inventory to generate sales. By dividing the Cost of Goods Sold by Average Inventory, businesses can determine the turnover rate; a higher turnover ratio suggests that inventory is being sold quickly and efficiently, while a lower ratio can indicate potential overstocking or inefficiencies in sales.

In contrast, the other equations mentioned do not accurately reflect the definition of Inventory Ratio Turnover. For instance, the ratio of Sales to Average Inventory would measure how well sales are generated relative to inventory, but it does not focus on the costs associated with those sales, which are critical for understanding inventory turnover. Similarly, Total Revenue relative to Total Assets does not involve inventory at all and is irrelevant to this context, while the ratio of Average Inventory to Cost of Goods Sold would inversely represent the turnover, rather than how effectively inventory is moved.