Activity ratio measures the average rate at which Inventory (v2040) moves through and out of the enterprise. The average ratio is calculated as follows:
Cost of Goods Sold (v1040.00)((Beg. Inventory + End. Inventory) / 2)
where Inventory is (v2040).
A high Inventory Turnover (v6075.00) ratio does not indicate efficient control over inventories; a company that is living from “hand to mouth” would have a high ratio. The Inventory Turnover (v6075.00) ratio is not strongly affected by the choice of LIFO versus FIFO inventory accounting methods because the impact of the method influences the numerator and denominator.