Select the correct formula to calculate the inventory turnover ratio.

The inventory turnover ratio is an important metric that indicates how efficiently a business is managing its inventory. The formula used to calculate this ratio is the cost of goods sold (COGS) divided by the average inventory during a specific period. This relationship is critical because it highlights how many times a company's inventory is sold and replaced over a given timeframe.

When you use cost of goods sold in the numerator, it provides insight into how well a company is turning its inventory into sales. A high inventory turnover ratio suggests that a company is selling its inventory quickly and efficiently, while a low ratio may indicate overstocking or weaker sales.

The average inventory in the denominator is significant because it smooths out fluctuations in inventory levels that might occur throughout the accounting period, providing a more accurate representation of inventory management.

Options that involve dividing sales or gross profit do not accurately measure inventory management effectiveness. They do not provide a clear connection between inventory levels and the actual cost associated with producing the goods sold, which is why those alternatives do not represent the inventory turnover ratio correctly. Thus, the formula using cost of goods sold and average inventory is the only effective way to calculate the inventory turnover ratio.