Consider a firm with a 2007 net income of $20 million, revenue of $60 million and cost of goods sold of $25 million. If the balance sheet amounts show $2 million of inventory and $500,000 of property, plant & equipment, what is the inventory turnover?

Inventory turnover days = 29.2 days

Explanation:

Inventory turnover is the average length of time it takes the item of stock to be sold and replaced. It can be measured in days or the number of times.

it can be calculated in days or in number of times

Inventory turnover number of times = cost of goods sold/average inventory

Inventory turnover days = (Average inventory /cost of good sold)× 365 days

It shorter the  Inventory turnover  in days the better. We will use the days formula.

Note average inventory = (opening inventory + closing inventory)/2

However, the average inventory concept will not be applicable in this question because the opening inventory figure is not given. Hence, we will use the closing inventory figure to represent the average inventory

Inventory turnover days = 2,000,000/25,000,000× 365 days= 29.2

Inventory turnover days = 29.2 days

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