Accounting for IGCSE & O level - Advanced Principles (Section 1 - No. 23)
The rule of inventory turnover is a useful indicator of how successfully a business is at selling its products and replacing its inventory. It measures how frequently inventory is sold off and replaced during an accounting year. It is calculated as follows:
cost of sales / average inventory
number of times inventory is replaced in accounting year
average inventory / cost of sales
average inventory turnover / average inventory
Explication
The rule of inventory turnover is cost of sales / average inventory.