Question

what does an inventory turnover ratio of 9 say about a business? its entire inventory was converted into sales 9 times within the year. its costs of goods sold (cogs) are 90% of its total revenue. its average inventory is 9 times larger than it should be.

Explanation:

The inventory turnover ratio is calculated as $\frac{\text{Cost of Goods Sold (COGS)}}{\text{Average Inventory}}$. It measures how many times a company's inventory is sold (converted to sales) during a period (usually a year). A ratio of 9 means the inventory is turned over (sold and replaced) 9 times a year. The second option is incorrect as inventory turnover doesn't directly relate COGS to total revenue as a percentage like that. The third option is incorrect because a turnover ratio of 9 implies efficient inventory management (not that inventory is too large).

Answer:

A. Its entire inventory was converted into sales 9 times within the year.