What is inventory turnover and how is it calculated?

• A. Turnover = average inventory ÷ COGS
• B. Turnover = COGS × average inventory
• C. Turnover = COGS ÷ average inventory
• D. Turnover = Ending inventory ÷ Beginning inventory

Answer: (C)

Inventory turnover measures how many times a company’s inventory is sold and replaced over a given period. It is calculated by dividing the cost of goods sold during the period by the average inventory held during that period. Using average inventory, typically computed as (beginning inventory + ending inventory) / 2, helps smooth out fluctuations and provides a representative level of stock. So the calculation is: turnover = COGS / average inventory. For example, if COGS is 600,000 and average inventory is 120,000, turnover is 5, meaning the inventory cycled through five times in the period. A higher turnover indicates efficient inventory use and faster sales; a lower turnover can signal overstocking or slow-moving items. The other options aren’t correct because they either multiply COGS by average inventory, or use ending or beginning inventory in ways that don’t reflect how many times stock actually sold and was replenished.