Hi Munavarsha,
Thumb Rule: whenever ratio analysis includes one item from P&L and another from B/S. Always use average for B/S item. So in the case of Inventory turnover ratio, the formula is
COGS divided by Average inventory
COGS is P&L items and Inventory is B/S item. hence always use average inventory ( if prior year and current year information is provided)
Thanks,
Kiran
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Kiran Kulkarni
Director/Manager
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Original Message:
Sent: 05-22-2021 11:08 AM
From: Munavarsha Sulaiman
Subject: Need clarification using average or not
Sir,
Pfa photograph
My question is while calculating difference on days sale in inventory between prior year and current year
Whether to use average inventory or that period inventory only????