How is the inventory turnover ratio calculated?

The inventory turnover ratio is a key metric used to assess how efficiently a company utilizes its inventory. It indicates how many times inventory is sold or used during a specific period, typically a year.

The calculation involves dividing the total amount of supplies or inventory issued (often expressed in dollars) by the average inventory for the same period. This method effectively measures the rate at which inventory is depleted in relation to its average balance over time, providing insight into inventory management efficiency.

By using supplies issued in the numerator, this calculation reflects how well the company is converting its inventory into sales. The average inventory in the denominator normalizes the figure over time, accounting for fluctuations in inventory levels. This approach is particularly useful for businesses that handle physical goods, as it provides clear information on stock management and sales performance.

To contrast this with other options, the other methods either do not accurately reflect the concept of inventory turnover or involve irrelevant figures that do not contribute to understanding inventory efficiency.