Activity ratio measures the average rate at which inventories move through and out of the enterprise.
The ratio for Inventory Turnover (v6100.00) is calculated as follows:
Cost of Goods Sold (v1040.00)
Inventory (v2040.00)
A high Inventory Turnover (v6100.00) 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 (v6100.00) 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.