For a company that maintains a constant dollar value of inventory on hand, a higher gross profit percentage will translate into a higher inventory turnover ratio.

Question

Quizplus · Accepted Answer

A higher gross profit percentage does not directly affect the inventory turnover ratio if the dollar value of inventory on hand remains constant. The inventory turnover ratio is calculated by dividing the cost of goods sold by the average inventory value. A higher gross profit percentage indicates a higher selling price or lower cost of goods sold relative to sales, but it does not inherently mean the company is moving inventory more quickly if the dollar value of inventory remains the same.

For a Company That Maintains a Constant Dollar Value of Inventory