Question

days of inventory is equal to which of the following?
365 divided by the inventory turnover ratio
current assets divided by current liabilities
costs of goods sold divided by average inventory

Explanation:

• The formula for days of inventory (also called days' sales in inventory) is calculated as \( \frac{365}{\text{Inventory Turnover Ratio}} \), where the inventory turnover ratio is \( \frac{\text{Cost of Goods Sold}}{\text{Average Inventory}} \).
• The second option is the current ratio formula (current assets / current liabilities), not related to days of inventory.
• The third option is the inventory turnover ratio formula, not days of inventory.

Answer:

A. 365 divided by the inventory turnover ratio