Dave Murray's Pontiac dealership has an inventory turnover of 5.What does this figure mean?
A) The average value of Dave's inventory is five times his sales.
B) For every $1 Dave spends on inventory, he reaps $5 in sales.
C) Dave's beginning inventory is five times his ending inventory.
D) Dave's average inventory is five times greater than his cost of goods sold.
E) Dave sells his merchandise five times each year.

Question

Quizplus · Accepted Answer

The inventory turnover ratio measures how many times a company sells and replaces its inventory during a given period. In this case, Dave's dealership sells its entire inventory five times during the year (assuming a one-year period), which means that the average inventory is turned over once every 72 days (365 days/5). Option E correctly explains the meaning of the 5 inventory turnover ratio.

Dave Murray's Pontiac Dealership Has an Inventory Turnover of 5