Inventory turnover is computed by dividing average merchandise inventory by cost of goods sold. This statement is false.
Inventory turnover is the rate at which inventory stock is sold, or can be used, and can be replaced. The inventory turnover ratio is calculated by dividing the cost of goods sold by average inventory of the same period.
The inventory turnover ratio is the number of times a company has sold as well as replenished its inventory over a specific amount of time. The formula of inventory turnover can also be used to calculate the number of days it will take to sell the inventory in hand.
Inventory Turnover Ratio is defined as = Cost of Goods Sold / Avg. Inventory
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