Question

While using financial statement analysis, which ratio will be most useful in assessing the company's operational efficiency?Select one:
a. Current Ratio
b. Quick ratio
c. Cost of goods sold percentage
d. Inventory turnover

Answer 1

Answer:

d. Inventory Turnover Ratio

Explanation:

Inventory turnover ratio is a measure of how often a company's inventory is sold and converted into cash.

Inventory Turnover Ratio is given by:  $\frac{Cost\ of\ goods\ sold}{Average\ stock}$

Inventory turnover ratio depicts how efficiently a company generates sales through it's inventory or stock.

The ratio also points towards cost of goods sold which is one of it's components. Lower the cost, higher the profitability.

Higher the inventory turnover ratio better it is for a company.