The rate of turnover is calculated by dividing which two factors?

The rate of turnover is an important metric used to assess how efficiently a company manages its inventory. It specifically measures how many times a company's inventory is sold and replaced over a period, typically a year.

To calculate the turnover rate, the correct method involves dividing the cost of goods sold by the average inventory. This approach provides insight into the efficiency of inventory management and sales performance. The cost of goods sold reflects the direct costs attributable to the production of the goods sold by the company, while the average inventory represents the mean value of inventory held during the period, allowing for fluctuations and seasonal changes.

This calculation showcases how often inventory is being converted into sales, indicating whether a business is effectively meeting consumer demand. A higher turnover rate suggests that the company is selling inventory quickly, which is generally a positive sign of operational efficiency and financial health.