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Buying & Selling a Business

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  4. What is the Inventory Turnover Activity ratio ?

What is the Inventory Turnover Activity ratio ?

This ratio illustrates how many times your initial inventory is replaced in a year. Cost of Goods Sold divided by Average Inventory = IT Ratio. Also Days in the year divided by the Inventory Turnover Ratio = Number of days in Inventory Ratio. Faster turnovers are viewed as a positive trend. The result is meaningful only when compared to other business's in the same industry or the same business's past inventory turnover.

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