Chapter 6, Problem 6.10E

To determine

Inventory turnover ratio: This is a financial measure that is used to evaluate as to how many times a company sells or uses its inventory during an accounting period.

Formula for inventory turnover ratio:

$\text{Inventory turnover = }\frac{\text{Cost of goods sold}}{\text{Average inventory}}$

Days’ sales in inventory: Days’ sales in inventory are used to determine number of days a particular company takes to make sales of the inventory available with them.

Formula for days’ in sales inventory:

$\text{Days' sales in inventory}=\frac{\text{Days in accounting period}}{\text{Inventory turnover}}$

Gross profit rate: This is the financial ratio that evaluates the money left over out of the total revenues after deducting the cost of goods sold. Thus, it shows the relationship between the gross profit and net sales.

Formula for gross profit rate:

$\text{Gross profit rate}=\frac{\text{Gross profit}}{\text{Net sales}}\times 100$

To Calculate: The inventory turnover for 2012, 2013, and 2014 of Company P.